Practice Multiple Choice Test with solutions PDF

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Practice Multiple Choice Test. ACCY342 2019 Autumn. SOLUTIONS

1. 25. In a review engagement, which of the following is least likely to occur during the engagement? a. b. c. *d.

enquiries with management and other personnel. analytical procedures. review of the internal controls of the entity. substantive audit procedures.

Correct answer: d Learning Objective 1.3 ~ Discriminate between the different levels of assurance 2. 27. The following can be said about an emphasis of matter: a. b. c. *d.

it cannot be used when expressing audit opinion that has pervasive misstatements. it is only used in unqualified audit opinions. it is included when the auditors opinion has changed and the auditor wants to bring the users’ attention to a particular matter. it is included when the auditor’s opinion has not changed and the auditor wants to bring the users’ attention to a particular matter.

Correct answer: d Learning Objective 1.4 ~ Categorise different audit opinions 3. 38. Agency theory can be described as the theory of: *a. b. c. d.

the relationship between the owner and the management of the business when the owner is not the manager of the business. when the finance function is outsourced to an outside party, and the auditor is required to audit the outside party’s work. hiring an agency to review the work of the management, in this case it is the auditor. none of the above.

Correct answer: a Learning Objective 1.6 ~ Justify the demand for audit and assurance services 4. 40. The objective of the Financial Reporting Council does not include: a. b. c. *d.

to monitor and report regularly on matters concerning auditor independence. to oversee the process used for setting accounting and auditing standards. all of the above are included in the objectives of the Financial Reporting Council. to be involved in the technical issues around the standard-setting process.

Correct answer: d Learning Objective 1.7 ~ Compare the different regulators and regulations surrounding the assurance process 5. 20. Professional competence refers to the to the members of a professional body; a. b. c. *d.

Maintain the knowledge to adequately operate in their clients industry. Maintain a level of understanding of their clients business operations. Maintain a level of commitment to their industry associations. Maintain their level of knowledge and skill required by the professional body.

Correct answer: d Learning Objective 2.1 ~ explain the fundamental principles of professional ethics 6. 27. Which of the following is an example of a familiarity threat to independence? a. b. c. *d.

a bank account held with the client. performing services for the client that are then assured. both a and b. a former partner of the assurance firm holdings a senior position with the client.

Correct answer: d Learning Objective 2.2 ~ define and assess auditor independence 7. 38. Executive directors are: a. b. c. *d.

part of the company's management team. full-time employees of the company. not members of the company's board of directors. a and b.

Correct answer: d Learning Objective 2.3 ~ describe the relationship between an auditor and key groups they have a professional link with during the audit engagement 8. 43. Which of these cases established the legal principle that auditors owe a duty of care to shareholders as a group and not to individual shareholders? *a. b. c. d.

Caparo. Esanda. Pacific Acceptance. Scott Group.

Correct answer: a

Learning Objective 2.4 ~ illustrate the auditor’s legal liability to their client, contributory negligence and the extent to which an auditor is liable to third parties

9. 20. Planning an audit of a financial report requires that an auditor plan their audit to reduce audit risk to an acceptable low level. Audit risk can be defined as; *a. b. c. d.

The risk that the auditor expresses and inappropriate opinion at the conclusion of the audit. The risk that the auditor does identify the material misstatements. That sufficient appropriate evidence cannot be gathered to form an opinion of the truthfulness of the financial statements. That fraud exists in the accounts and the client is aware that the fraud exists.

Correct answer: a Learning Objective 3.1 ~ explain the different phases of an audit 10. 24. In assessing the client's relationship with its employees, the auditor will consider: a. b. c. *d.

The level of unionisation among the workforce. How well a client pays its employees. The attitude of staff to their employer. All of the above.

Correct answer: d Learning Objective 3.2 ~ relate the process used in gaining an understanding of the client

11. 31. When assessing the risk of fraud, an auditor can consider: a. b. c. *d.

Attitudes and rationalisation to justify a fraud. Opportunities to perpetuate a fraud. Incentives and pressures to commit fraud. All of the above.

Correct answer: d Learning Objective 3.3 ~ evaluate fraud risk 12. 40. Unauthorised access to a company's data can occur when: a. b. *c. d.

Inadequate backups of data are maintained. Computer programs are tested thoroughly. There are poor password protection procedures. There are sufficient security procedures.

Correct answer: c Learning Objective 3.6 ~ evaluate how a client’s information technology (IT) can affect risk

13. 21. Which of the following statements is correct about audit risk? d. b. c. *d.

Audit risk can be reduced at the planning stage of an audit by identifying the key risks faced by the client. Audit risk is the risk that an auditor expresses an inappropriate opinion when a financial report is materially stated. It is impossible to completely eliminate audit risk. All of the above.

Correct answer: d Learning Objective 4.1 ~ evaluate audit risk 14. 24. Which of the following statements about materiality is incorrect? a. *b. c. d.

Materiality is a key auditing concept that is assessed during the risk assessment phase of every audit. Information is considered material if it has no impact on the decision-making process of financial report users. Materiality is used to guide audit testing and assess the validity of information contained in the financial report. The preliminary assessment of materiality guides audit planning and testing.

Correct answer: b Learning Objective 4.2 ~ outline the concept of materiality 15. 30. An audit strategy will include increased reliance on tests of controls when: *a. b. c. d.

Inherent risk and control risk are low. The auditor believes there is a high risk that their client's internal controls will not prevent or detect material misstatements. There is a high susceptibility of assertions to material misstatements. Inherent risk and control are high.

Correct answer: a Learning Objective 4.3 ~ discuss how an auditor determines their audit strategy 16. 39. Analytical procedures are conducted at the risk assessment phase of the audit to: a. b. c. *d.

Aid in the identification of risk. Identify where fraud has occurred. Enhance the understanding of a client. Both a and c.

Correct answer: d

Learning Objective 4.5 ~ specify how an auditor uses analytical procedures when assessing risk

17. 19. When testing for accuracy, an auditor searches for evidence: a. b. c. *d.

to verify that recorded assets are owned by the entity that all disclosures that should have been included in the financial report have been included to verify that a recorded transaction or event took place and relates to the entity that transactions and events have been recorded at appropriate amounts

Correct answer: d Learning Objective 5.2 ~ identify and appraise different types of audit evidence and assess sufficient appropriate audit evidence 18. 23. Which broad category of corroborating evidence is the least persuasive to an auditor? a. *b. c. d.

externally generated evidence held by the client internally generated evidence externally generated evidence sent directly to the auditor none of the above

Correct answer: b Learning Objective 5.3 ~ determine the persuasiveness of audit evidence 19. 26. Which of the following is an example of a situation where an auditor may use the work of an expert? a. b. *c. d.

A geologist engaged to evaluate the quantity and quality of mineral deposits An actuary engaged to verify insurance premiums Both a and b None of the above

Correct answer: c Learning Objective 5.4 ~ explain the issues to consider when using the work of an expert 20. 30. When assigning work to a component auditor, the group engagement partner will; *a. b. c. d.

Consider the capacity of the other auditor to undertake the audit Review the work if this is the first engagement by the audit firm Separate the component auditor’s findings from those of audit firm Give specific details as to the way to conduct the audit

Correct answer: a Learning Objective 5.5 ~ discuss the issues to consider when using the work of another auditor...