INTEGRATED ASSESSMENT AUDITING THEORY and PROBLEMS
Overview of Financial Audit and Substantive Audit of Cash and cash equivalents
Instruction: Encircle the letter of the correct answer.
1.In performing the attest function, the primary goal of the CPA is to
a. Determine whether the client's assertions are fairly stated.
The auditor’s job is to evaluate management’s assertions in the financial statements and
express an opinion if they are presented fairly in accordance with the applicable
framework. The auditor's job is to evaluate management’s assertions in the financial
statements and express an opinion if they are presented fairly in accordance with the
applicable framework.
a. Examine individual transactions so that the auditor may certify as to their validity
Too detailed; auditors don’t certify each transaction, they test samples.
b. Assure the consistent application of correct accounting procedures
Consistency is part of GAAP compliance, but the auditor’s focus is overall fairness, not
just procedure consistency.
c. Detect fraud
Detecting fraud is not the primary goal, only incidental to forming an opinion.
2. Which of the following is the purpose of an auditor's
a. Is an assurance as to the efficiency with which management has conducted the affairs of
the entity, but not effectiveness.
Efficiency is management’s concern, not the auditor’s.
b. Is an assurance as to the future viability of the entity.
Future viability cannot be guaranteed
c. Certifies the correctness of the financial statements.
The auditor does not “certify” correctness, only provides reasonable assurance.
d. Enhances the credibility of the financial statements.
The independent auditor gives assurance, which increases user confidence.
3. This procedure is deemed necessary to achieve the objective of the audit
a. Objective of an audit
Objective is the “goal,” not the procedure.
b. Reasonable assurance
Reasonable assurance is an outcome, not a procedure.
c. Scope of an audit
Scope defines the extent of procedures needed to achieve objectives.
d. Audit program
The audit program is a plan, not the scope itself.
4. I. Assurance is where a CPA issues a written report on subject matter that is the responsibility
of another party.
, II. Attestation generally refers to an expert's written communication of a conclusion about the
reliability of someone else's assertions.
III. Assurance always involves a conclusion that enhances reliability of the information.
A. All statements are correct.
B. Only statements I and II are correct.
C. Only statements II and III are correct.
D. None of the statements are correct.
5. The following are part of the three-party relationship, except
A. Fraud Auditors
B. Responsible Party
C. Intended users
D. Practitioner
B, C, D are correct parts of the relationship.
6. The objective of this assurance engagement is to reduce the level of risk to a level that is
acceptable in the circumstances of the engagement, as a basis for a negative form of
expression of the independent auditor's conclusion.
A. Limited Assurance Engagement
uses negative wording (“nothing has come to our attention”).
B. Absolute Assurance Engagement
is impossible
C. Reasonable Assurance
high-level, positive form not negative
D. Negative Assurance Engagement
Negative assurance is a type of limited assurance, not a separate engagement.
7. In an assurance engagement, the outcome of the evaluation or measurement of a subject
matter against the criteria is called:
A. Subject Matter
Is what evaluated
B. Subject Matter Information
Example: Financial statements (information about subject matter).
C. Conclusion
is auditor opinion
D. Audit Report
Communicates conclusion
8. Users of financial statements demand independent audit because
A. Users demand assurance that fraud does not exist
Fraud detection is not the main purpose
B. Management relies on the auditor to improve internal controls
Auditor doesn't improve internal control
Overview of Financial Audit and Substantive Audit of Cash and cash equivalents
Instruction: Encircle the letter of the correct answer.
1.In performing the attest function, the primary goal of the CPA is to
a. Determine whether the client's assertions are fairly stated.
The auditor’s job is to evaluate management’s assertions in the financial statements and
express an opinion if they are presented fairly in accordance with the applicable
framework. The auditor's job is to evaluate management’s assertions in the financial
statements and express an opinion if they are presented fairly in accordance with the
applicable framework.
a. Examine individual transactions so that the auditor may certify as to their validity
Too detailed; auditors don’t certify each transaction, they test samples.
b. Assure the consistent application of correct accounting procedures
Consistency is part of GAAP compliance, but the auditor’s focus is overall fairness, not
just procedure consistency.
c. Detect fraud
Detecting fraud is not the primary goal, only incidental to forming an opinion.
2. Which of the following is the purpose of an auditor's
a. Is an assurance as to the efficiency with which management has conducted the affairs of
the entity, but not effectiveness.
Efficiency is management’s concern, not the auditor’s.
b. Is an assurance as to the future viability of the entity.
Future viability cannot be guaranteed
c. Certifies the correctness of the financial statements.
The auditor does not “certify” correctness, only provides reasonable assurance.
d. Enhances the credibility of the financial statements.
The independent auditor gives assurance, which increases user confidence.
3. This procedure is deemed necessary to achieve the objective of the audit
a. Objective of an audit
Objective is the “goal,” not the procedure.
b. Reasonable assurance
Reasonable assurance is an outcome, not a procedure.
c. Scope of an audit
Scope defines the extent of procedures needed to achieve objectives.
d. Audit program
The audit program is a plan, not the scope itself.
4. I. Assurance is where a CPA issues a written report on subject matter that is the responsibility
of another party.
, II. Attestation generally refers to an expert's written communication of a conclusion about the
reliability of someone else's assertions.
III. Assurance always involves a conclusion that enhances reliability of the information.
A. All statements are correct.
B. Only statements I and II are correct.
C. Only statements II and III are correct.
D. None of the statements are correct.
5. The following are part of the three-party relationship, except
A. Fraud Auditors
B. Responsible Party
C. Intended users
D. Practitioner
B, C, D are correct parts of the relationship.
6. The objective of this assurance engagement is to reduce the level of risk to a level that is
acceptable in the circumstances of the engagement, as a basis for a negative form of
expression of the independent auditor's conclusion.
A. Limited Assurance Engagement
uses negative wording (“nothing has come to our attention”).
B. Absolute Assurance Engagement
is impossible
C. Reasonable Assurance
high-level, positive form not negative
D. Negative Assurance Engagement
Negative assurance is a type of limited assurance, not a separate engagement.
7. In an assurance engagement, the outcome of the evaluation or measurement of a subject
matter against the criteria is called:
A. Subject Matter
Is what evaluated
B. Subject Matter Information
Example: Financial statements (information about subject matter).
C. Conclusion
is auditor opinion
D. Audit Report
Communicates conclusion
8. Users of financial statements demand independent audit because
A. Users demand assurance that fraud does not exist
Fraud detection is not the main purpose
B. Management relies on the auditor to improve internal controls
Auditor doesn't improve internal control
