Learning Box. : 1-1 Identify the components of an audit and explain why there is a demand for audits 2) Auditing should be done by a qualified A) chartered accountant. B) certified management accountant. C) competent and independent person, D) professional accountant. Answer: C Dif:2 Type:MS Page Ret: 5 Learning Box. : I-I Identify the components of an audit and explain vhf there is 3) Which of the following illustrates the definition of auditing with respect to the reporting process?
A) accumulation and evaluation Of evidence about balance sheet accounts B) reporting on the degree of correspondence between financial tenements and ASPS C) writing an operational audit report that is tailored to the client’s situation D) making sure that the auditor is competent and understands evidence gathering Answer: B Dif:2 Type: MS Page Ref: 5 4) In the audit of historical financial statements by PA firms, the criteria used are A) generally accepted auditing standards. B) generally accepted accounting principles. C) regulations to the Canada Revenue Agency. D) regulations of the provincial securities commissions.
Answer: B Dif:l Type: M C Page kef: 5 Learning Box. : 1-1 Identity the components of an audit and explain why there is demand for audits S) A large PA firm has assessed evidence collected during an engagement. Criteria used to assess the financial statements were International Financial Reporting Standards (APRS). A high level Of assurance was Obtained. The type of engagement conducted was a(n) A) audit. B) review. C) management consulting. D) compilation. Answer: A Dif:2 Type: MS Page 5 6) The auditor and the entities should agree on the criteria to be used in the audit A. Before the audit starts. 8) after the audit planning has been done. C) as they progress with the audit as they can determine which criteria is more suitable. D) at the end of the audit. Dif:l Type:MS Page Ret: 5 Learning Box. : I-I Identify the components of an audit and explain why there is 7) George had a conversation with the accounting personnel and documented information about how the accounting systems function. He has also placed copies of accounting forms in his files. George is performing which task?
A) accounting procedures B) evidence gathering C) tax audit D) audit report preparation Dif:3 Type: MS Page Ref: 5 8) One of the reasons that an auditor must be competent is to be able to A) understand the engagement risks and the criteria used by the client. ) explain how the bookkeeping should be done to his staff C) record the transactions properly tort the underlying records. D) capture the information properly in the computer files, Dif 2 Type: M C Page Refer 6 g) One of the reasons that an auditor must be competent is to be able to A) select the type and amount of evidence to accumulate.
B) explain how the bookkeeping should be done to his staff. C) record the transactions properly for the underlying records. D) capture the information properly in the computer files. Dif:2 Type: MS Page Ref:6 Learning Box. : 1-1 Identify the components of an audit and explain why there s a demand for audits 10) It is important for the auditor to be independent because A) the auditor would not charge a fair rate to the client. B) the auditor might not be as knowledgeable of the subject matter and the criteria.
C) this will prevent bias in accumulating and evaluating evidence. D) the Canadian Tax Authorities require that the auditor be independent. Answer: C Dif:2 Type: MS Page Ref 6 II) Because an external auditor is paid a fee by a client company, he or she A) is absolutely independent and may conduct an audit. B) may be sufficiently independent to conduct an audit, C) is never considered to be independent. D) must receive approval of the relevant provincial securities commission before conducting an audit.
Answer: B Differ Type: M C Page kef: 6 12) The independent auditor’s report is the A) communication of the result of the audit to the users. B) set Of audited financial statements. C) invoice of the auditor detailing the work they have performed. D) report presented to management about the possible improvements. Answer: A Dif:2 Type: MS Page Ref: 6 13) In the audit of an individual’s tax return, the auditor should demonstrate competence in the use of A) external databases that contain economic statistics. B) standard personal and corporate tax preparation software.
C) the Income Tax Act and accompanying regulations. D) database management software for the use of client based research, Answer: Differ Type: M C Page Refer 6 14) In the audit of an individual’s tax return, the criteria used would be A) an accounting framework. B) the Income Tax Act. C) the client’s policies for taxable income. D) the auditor’s judgment. Is a demand for audits 15) In the audit Of a corporate tax return, the report provided by the Canada Revenue Agency auditor would describe A) an opinion on the likelihood often return error.
B) the likely accounting errors that could contribute to tax errors. C) management issues with respect to accurately reporting taxes. D) corporate income tax overages or income tax under payments, Answer: D Dif:2 Type:MS Page Ret: 6 16) Joe is recording sales transactions in the accounting system so that they can he summarized in a logical manner for the purpose of providing financial information for decision-making. Joe is performing A) accounting. B) auditing. C) review. D) management consulting. Dif:2 Type:MS Page 7 1 7) Which Of the following is an example Of accounting rather than auditing?
A) gathering evidence about the quality of accounts receivable B) entering sales transactions into the sales order system C) reviewing sales invoices to see if they have been calculated correctly D) comparing bank deposit documents to the recorded cash received Answer: B Dif:3 Type: MS Page Ref 7 18) In “auditing” accounting data, the concern is with A) determining whether recorded intimation properly reflects the economic events that occurred during the accounting period. B) determining if fraud has occurred. C) determining if taxable income has been calculated correctly.
D) analyzing the uncial information to be sure that it complies with government requirements. Dif:l Type: MS Page Ret: 7 19) Which of the following is an example of auditing rather than accounting? A) recording purchase amounts in the expense accounts B) posting the daily sales totals to the general ledger C) recording cash received in the customer account files D) evaluating whether accounts receivable are collectible Answer: D Dif:2 Type:MS Page Ref: 7 is a demand for audits 20) An accountant records information.
When conducting an audit, the auditor must possess A) an ability to interpret generally accepted counting frameworks. B) an education beyond the bachelor’s degree. C) an ability to classify transactions by type. D) an ability to organize and summarize economic events. Dif:2 Type: MS Page Ret 8 21) How does a financial statement audit affect a bank manager’s decision in providing loans to a corporate client? A) Information risk could be reduced, so the bank manager may lower the interest rate charged. B) The bank manager will lower the risk-free interest rate that applies to the corporation.
C) The business risk for the client will be reduced, so the borrowing costs will decline. D) The equines risk for the client will be increased, so the borrowing costs will be lowered. Answer: A Dif:3 Type:MS Page Ref:8 Learning Box. : I-I Identify the components Of an audit and explain Why there is 22) What is the most appropriate method for an organization to lower information risk related to its financial statements? To have A) good bookkeeping work completed on the accounts. 8) a high quality software package keep track of information. C) an independent financial statement audit conducted.
D) an independent operational audit conducted on effectiveness. Answer: C Dif:2 Type: MS Page Ref 8 3) Discuss the differences and similarities between the roles of accountants and auditors. What additional expertise must an auditor possess beyond that of an accountant? Answer: The role of accountants is to record, classify, and summarize economic events in a logical manner for the purpose of providing financial information for decision making. To do this, accountants must have a sound understanding of the principles and rules that provide the basis for preparing the financial information.
In addition, accountants are responsible for developing systems to ensure that the entity’s economic events are properly corded on a timely basis and at a reasonable cost. The role Of auditors is to determine Whether the financial information prepared by accountants properly reflects the economic events that occurred. To do this, the auditor must not only understand the principles and rules that provide the basis for preparing financial information, but must also possess expertise in the accumulation and evaluation of audit evidence.
It is this latter expertise that distinguishes auditors from accountants. Differ Type: SEES Page Ref: 7 is a demand for audits 24) Frederic is an account manager at a large Canadian bank. Frederic has to decide it the bank will make a loan to Frost Carp, a snow removal company. Further, Frederic has to decide how much they will lend to Frost and at what rate. Assuming that Frederic makes the loan, what factors will he use to decide the rate of interest? What factors are impacted by auditing and how? Answer: 1. Risk free interest rate: Rate bank could earn in a risk free investment such as government bonds, 2.
Business risk for the customer: Possibility that the customer will not be able to repay their loan because of economic or business conditions 3. Information risk: Possibility that the information upon which the equines decision was made was inaccurate. The audit impacts the 3rd factor. The importance of an audit is reflected as there is less risk Of the financial misstatement containing material errors if they have been audited. Having a set of audited financial statements can reduce the information risk and increase the likelihood that the bank Will make the loan.
Dif: 3 Type: SEES Page Ref:8 1. 2 Link the nature of assurance services to examples of actual services provided 1) The No-Name Advertising Rating Agency conducts independent surveys to determine the sources of purchases by consumers (e. G. Swapper ad, magazine ad, television ad). This information is then used by those media (i. E. Newspapers, magazines, and television broadcasters) to indicate to purchasers of advertising the breadth of coverage that they have. For example, Small Local Newspaper can say that of the purchasers of soap products made their decisions based upon their ads.
This helps in selling advertising. What type of service is No-Name providing? A) Assurance B) Attest C) Review D) Compilation Dif:2 Type:MS Page Ref:9 Learning Box. : 1-2 Link the nature Of assurance services to examples Of actual services provided ) Which of the following is an example of an attestation engagement? A) Accounting and bookkeeping services for the accounts B) An audit of internal controls over financial reporting C) Preparation of the annual financial statements, with notes D) Completion of provincial and federal tax returns Differ Type: MS Page Ref: 9 Learning Box. 1-2 Link the nature of assurance services to examples of actual services provided 3) For how many years will assurance engagements be required by individuals or organizations? A) usually only when organizations obtain debt or other loans B) for five years from the start of an organization until bet is retired C) only when historical such as financial information needs to be audited D) on an ongoing basis, as organizations and society’s needs evolve Dif: 2 Type: MS Page kef: I O 4) What impact is the presence Of factors such as real-time information (such as via the Internet) expected to have upon the demand for assurance services?
Demand is expected to A) decline, due to the lack Of adequate resources. B) grow, due to the increase in large corporations. C) grow, due to the need for forward-looking information. D) decline, as small businesses use the Internet more. Dif:2 Type:MS Page Ref: 10 ) A major type of assurance service performed by large public accounting firms is A) audit. B) review, C) compilation. Differ Type: M C Page Refer I O 6) In Canada, publicly traded companies are A) required to have audits. B) strongly encouraged to have audits. C) not required to have an audit if they have a review.
D) not required to have an audit. 7) A shareholder of a public Canadian firm can have access to the audited financial statements A) on the internet. 8) by calling the accounting department of the company. C) requesting a copy from the auditors. D) if he holds more than 1% of the shares of the company. Diet:l Type:MS Page Ret: 10 services provided 8) What type of information is available trot vow.. Seder. Com (System for Electronic Document Analysis and Retrieval)? Documents such as A) minutes of shareholders and directors meetings. B) transaction reports from major credit card companies.
C) annual reports and management discussion and analysis. D) listings of all of the shareholders on record. Dif:2 Type:MS Page kef: 10-11 9) A reason for a not-for-profit organization to be audited is A) complying With the laws requiring them to be audited. B) meeting requirements of lenders or funding sources. C) having a professional accountant perform their bookkeeping. D) ensuring that their financial statement do not contain errors. Answer: 8 Dif:3 Type: MS Page Ref: 1 1 10) Which of the following services provides a moderate level of assurance about the client’s financial statements?
A) Forecasts and projections B) Compliance D) Audit Differ Type: MS Page kef: 1 2 I I) Which of the following is an advantage of a review engagement as compared to an audit engagement? For the review engagement A) information risk is reduced more than for an audit. B) the documentation to be provided by the client is greater. C) the financial Statements assessed Will have more detail. D) it requires considerably less work, so is less costly. Dif:2 Type:MS Page Ref: 12 12) The Serbians-Solely Act requires the auditor to attest to the A) accuracy of the financial statements.
B) efficiency of the internal controls in financial reporting. C) effectiveness of internal controls. D) compliance of the Corcoran with the generally accepted accounting framework. Answer: C Differ Type: M C page Ret 1 2 Learning Box. : 1-2 Link the nature of assurance services to examples of actual services provided 13) The reasoning behind the requirements of the Serbians Solely Act’s section 404 (attestation on internal control over financial reporting) is that A) effective controls result in greater profits to organizations, reducing business failures.
B) effective controls reduce the likelihood of future misstatements in the financial Statements. C) better internal controls can be implemented at lower cost, improving product quality. D) automated controls improve customer service, resulting in higher product sales. Answer: B Dif:3 Type:MS Page Ref: 12 14) There is an increasing demand for assurance about computer controls surrounding financial information transacted electronically and the security f the information related to the transaction. This is in large part due to A) the increasing presence of internet sales in many businesses.
B) the use of computer assisted auditing tools, C) the many transactions and information shared online and in real time by companies, D) client’s uncertainty about the proper functioning Of their computer system. Answer: C Dif 2 Type: MS page Ref 1 2 IS) The purpose of a Webster service is to assure the user that A) criteria related to business practices, transaction integrity, and information processes have been met B) information systems are reliable in areas such as security, data integrity, ND program quality. C) controls over information systems implemented by the company are used consistently and reliably.
D) there will not be any unauthorized access to the web site or other systems used by the client organization. Answer: A 16) Which of the following services results in the placement of an electronic seal affixed to the web site? A) review engagement B) internal controls assessment C) struts D) Webster Dif:2 Type: MS Page Ref 12 Learning Box. : 1-2 Link the nature to assurance services to examples of actual services provided 1 7) PA is attempting to sell a service to his clients that will roved assurance on information systems reliability.