Quiz: Chapter 4- Auditing 2


Chapter 4- Auditing 2Online version Activity Lecture 2 by asmaa Elsayed 1 When gaining an understanding of the client, the auditor will identify the geographic location of the client because: a the auditor may plan to use staff from affiliated offices to visit overseas locations. b the auditor will only visit one location to assess processes and procedures. c more decentralized clients are easier to control. d more centralized clients are harder to control. 2 When gaining an understanding of the client’s sources of financing, the auditor: Select answer from the options below a is not interested in debt covenants because most debt contracts are the same. b determines if the client is meeting principal and interest payments when they are due. c determines if the client is writing off uncollectible accounts receivable. d ignores the relative reliance on debt versus equity funding because that is a management decision, not an audit issue. 3 When the auditor is engaged at the risk assessment stage of the audit, analytical procedures are rarely used because these would represent substantive procedures. a True b False 4 Common uses of analytical procedures include all of the following except: a testing account balances derived from estimates during the risk response stage. b risk identification during the risk assessment stage. c overall assessment of financial statements at the final review stage of the audit. d test of internal controls. 5 Analytical procedures: Select answer from the options below a cannot be performed on interim data. b are only useful if the client’s variation from budget is low. c must take into account seasonal variation in the client’s business. d are not affected by different accounting methods between the client and other members of the industry. 6 Which of the following choices would indicate an appropriate change in the auditor’s approach to the audit when an increased level of risk is present in a certain area? Select answer from the options below a Obtain management assurances in writing pertaining to the increased area of risk. b Assigning less audit staff to the engagement. c Assignment of personnel with specialized skills for the area of increased risk. d Withdrawing from the audit. 7 Risks of material misstatement that are associated with a client’s IT system include all of the following except: a failure to accrue for a contingent liability. b a terminated employee who is still able to log on to the client’s IT system. c no schedule for backing up data. d the installation of new software that still needs modifications to operate as needed. 8 When gaining an understanding of the client at the industry level, the auditor will: a consider the level of demand for the goods provided by companies in the industry. b assess the amount of faulty goods the client returns to suppliers. c determine if the client has centralized or decentralized operations. d determine if the client has a simple or complex capital structure. 9 In a period of recession in a particular industry, the auditor would typically spend more time on which of the following accounts? a Equity method investment account with a noncontrolling interest in a subsidiary. b Purchase discounts. c Preferred stock. d Allowance for doubtful accounts. 10 If an auditor is considering accepting a client in an industry that is unfamiliar to the auditor, the auditor should a rely on the opinion of specialists the auditor hires. b not accept the engagement. c attempt to learn all matters that would materially pertain to the entity’s business. d issue a disclaimer of opinion.

1

When gaining an understanding of the client, the auditor will identify the geographic location of the client because:

a

the auditor may plan to use staff from affiliated offices to visit overseas locations.

b

the auditor will only visit one location to assess processes and procedures.

c

more decentralized clients are easier to control.

d

more centralized clients are harder to control.

2

When gaining an understanding of the client’s sources of financing, the auditor: Select answer from the options below

a

is not interested in debt covenants because most debt contracts are the same.

b

determines if the client is meeting principal and interest payments when they are due.

c

determines if the client is writing off uncollectible accounts receivable.

d

ignores the relative reliance on debt versus equity funding because that is a management decision, not an audit issue.

3

When the auditor is engaged at the risk assessment stage of the audit, analytical procedures are rarely used because these would represent substantive procedures.

a

True

b

False

4

Common uses of analytical procedures include all of the following except:

a

testing account balances derived from estimates during the risk response stage.

b

risk identification during the risk assessment stage.

c

overall assessment of financial statements at the final review stage of the audit.

d

test of internal controls.

5

Analytical procedures: Select answer from the options below

a

cannot be performed on interim data.

b

are only useful if the client’s variation from budget is low.

c

must take into account seasonal variation in the client’s business.

d

are not affected by different accounting methods between the client and other members of the industry.

6

Which of the following choices would indicate an appropriate change in the auditor’s approach to the audit when an increased level of risk is present in a certain area? Select answer from the options below

a

Obtain management assurances in writing pertaining to the increased area of risk.

b

Assigning less audit staff to the engagement.

c

Assignment of personnel with specialized skills for the area of increased risk.

d

Withdrawing from the audit.

7

Risks of material misstatement that are associated with a client’s IT system include all of the following except:

a

failure to accrue for a contingent liability.

b

a terminated employee who is still able to log on to the client’s IT system.

c

no schedule for backing up data.

d

the installation of new software that still needs modifications to operate as needed.

8

When gaining an understanding of the client at the industry level, the auditor will:

a

consider the level of demand for the goods provided by companies in the industry.

b

assess the amount of faulty goods the client returns to suppliers.

c

determine if the client has centralized or decentralized operations.

d

determine if the client has a simple or complex capital structure.

9

In a period of recession in a particular industry, the auditor would typically spend more time on which of the following accounts?

a

Equity method investment account with a noncontrolling interest in a subsidiary.

b

Purchase discounts.

c

Preferred stock.

d

Allowance for doubtful accounts.

10

If an auditor is considering accepting a client in an industry that is unfamiliar to the auditor, the auditor should

a

rely on the opinion of specialists the auditor hires.

b

not accept the engagement.

c

attempt to learn all matters that would materially pertain to the entity’s business.

d

issue a disclaimer of opinion.

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Chapter 4- Auditing 2

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Chapter 4- Auditing 2Online version

by asmaa Elsayed

When gaining an understanding of the client, the auditor will identify the geographic location of the client because:

When gaining an understanding of the client’s sources of financing, the auditor: Select answer from the options below

When the auditor is engaged at the risk assessment stage of the audit, analytical procedures are rarely used because these would represent substantive procedures.

Common uses of analytical procedures include all of the following except:

Analytical procedures: Select answer from the options below

Which of the following choices would indicate an appropriate change in the auditor’s approach to the audit when an increased level of risk is present in a certain area? Select answer from the options below

Risks of material misstatement that are associated with a client’s IT system include all of the following except:

When gaining an understanding of the client at the industry level, the auditor will:

In a period of recession in a particular industry, the auditor would typically spend more time on which of the following accounts?

If an auditor is considering accepting a client in an industry that is unfamiliar to the auditor, the auditor should

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