Acctg Pre 08 Quiz 1 auditing in a specialized industry PDF

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AcctgPre08 Quiz 1. Particular IT concerns for banks include use of complex valuation models incorporated in the IT systems. Correct answer: True IT systems is considered a low-risk area for banks. Correct answer: False PFRS 9 provides that a financial instrument be measured at fair value plus transa...

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AcctgPre08 Quiz 1.1 1. Particular IT concerns for banks include use of complex valuation models incorporated in the IT systems. Correct answer: True 2. IT systems is considered a low-risk area for banks. Correct answer: False 3. PFRS 9 provides that a financial instrument be measured at fair value plus transaction costs. Correct answer: False 4. In an audit of banks, substantive audit procedures include inspection, observation, inquiry, confirmation and reperformance. Correct answer: False 5. Computation consists of checking the arithmetical accuracy of source documents and accounting records or of performing independent calculations. In the context of the audit of a bank’s financial statements, computation is a useful procedure for checking the consistent application of valuation models. Correct answer: True 6. Pawnshop operations may include both personal and real property as security for a loan. Correct answer: False 7. A difference between bank FI and non-bank FI is that non-banks may not accept deposits. Correct answer: False 8. Banks often engage in transactions that are initiated in one jurisdiction, recorded in a different jurisdiction and managed in yet another jurisdiction. Correct answer: True 9. BSP is governed by banking institutions. Correct answer: False 10. In developing an overall plan for the audit of the financial statements of a bank, the auditor gives particular attention to the extent of IT and other systems used by the bank. Correct answer: True 11. IAPS 1006 applies to audits of financial statements of banks. Correct answer: True 12.Liquidity risk is the risk that one side of a transaction will be settled without value being received from the customer or counterparty. Correct answer: False 13.PRFS 7 Financial Instruments: Disclosures may be relevant when auditing banks and other financial institutions. Correct answer: True 14.An auditor should acquire all the expertise in banking before he can accept an audit engagement of banks. Correct answer: False 15.If you are to accept an audit engagement of a client engaged primarily in banking transactions, you should obtain the necessary experience and expertise during the audit engagement. Correct answer: False 16.The auditor remains alert for related party transactions during the course of the audit, only specifically in the lending and investment areas. Correct answer: False 17.Banks typically have a wide diversity of activities, which means that it is sometimes difficult for an auditor to fully understand the implications of particular transactions. Correct answer: True 18.Inherent and control risk relating to banks can be reduced by the auditor. Correct answer: False 19.In developing an overall plan for the audit of the financial statements of a bank, the auditor gives particular attention to existence of related party transactions. Correct answer: True

20.A bank’s assets are often readily transferable, of high value and in a form that cannot be safeguarded by physical procedures. Correct answer: False 21.General audit objectives for specialized industries will be different from nonspecialized industries. Correct answer: False 22.Accounting standards for special industry may be different from GAAP. Correct answer: True 23.For banking institutions, auditing the cash account has a higher control risk compared to other companies. Correct answer: False 24.Banks should have control procedures in place to ensure those rules are applied in the preparation of appropriate financial information for management and external reporting. Correct answer: True 25.When auditing banks and other financial institutions, the expected credit loss model in accordance with PFRS 9, should be considered by the auditor. Correct answer: True 26.Offshore Banking is the conduct of banking transactions in foreign currencies involving the receipt of funds from internal and external sources and the utilization of such funds. Correct answer: False 27.Some characteristics unique to banks include auditor’s consideration of the need for expertise in the context of the IT systems and communication networks the bank uses. Correct answer: True 28.The audit process may be revised for an audit of a specialized industry. Correct answer: True 29.In planning audit for banks, the auditor has a need for sufficient expertise in the aspects of banking relevant to the audit of the bank’s business activities. Correct answer: False 30.Understanding laws and regulations for banks and other financial institutions are essential when accepting an audit engagement. Correct answer: True 31.A specialized industry distinguished industry set apart from others for its’ unique way of accounting their daily transactions and reporting its financial results that are allowed under the applicable accounting framework, such as IFRS or GAAP. Correct answer: True 32.Classifications of banks are limited to universal banks, commercial banks, thrift banks, rural banks, cooperative banks, and Islamic banks. Correct answer: False 33.SEC rules and regulations may be adhered by specialized industries. Correct answer: False 34.Financial institutions include insurance companies. Correct answer: True 35.Specialized industries are unusual entities. Correct answer: False 36.Relevant laws and regulations should not be considered when auditing for a nonspecialized industry. Correct answer: False 37.According to RA 9160, covered transactions should be considered by an auditor. Correct answer: False 38.Specialized industries have different accounting standards as compared to PFRS. Correct answer: False 39.The greater number of branches a bank has, the higher risks of material misstatement may be associated with it. Correct answer: True

40.RA 8791 is otherwise known as “The General Banking Law of 2000”. Correct answer: True 41.For banking institutions, auditing the cash account has a higher inherent risk compared to other companies. Correct answer: False 42.In making an assessment of materiality, the auditor considers PSA 320 for auditing of banks. In addition the auditor should also consider the appropriateness of the going concern assumption which often depends upon matters related to the bank’s reputation as a sound financial institution and actions by regulators. Correct answer: True 43.The auditor may over rely on the opinion of expert/specialists of banks and other financial institutions. Correct answer: False 44.A bank generally records a liability account for a customer’s deposit transaction. Correct answer: True 45.The control concerns arising from the use of IT by a bank are similar to those arising when IT is used by other organizations. Correct answer: True...