Question 1

A type of assurance services that involves accumulating and analyzing support for the information provided by management is called an:
A)Audit
B)Investigation
C)Financial statement examination
D)Control test

Accepted Answer

An audit involves accumulating and analyzing support for the information provided by management, which includes examining evidence supporting the amounts and disclosures in financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Investigation typically focuses on a specific event or transaction and may involve a wider range of procedures, such as interviews or searches for evidence, whereas a financial statement examination is a specific type of audit that focuses on the financial statements themselves. Control testing involves testing the effectiveness of an organization's internal controls, which may be part of an audit but would not necessarily involve accumulating and analyzing support for the information provided by management.

Question 2

Financial statement audits are performed by _________ who have extensive knowledge of generally accepted accounting principles (GAAP) in the US and/or International Financial Reporting Standards (IFRS).
A)Public auditors
B)Governmental auditors
C)Certified Public Accountants
D)Internal auditors

Accepted Answer

Financial statement audits are performed by Certified Public Accountants (CPAs) who have extensive knowledge of generally accepted accounting principles (GAAP) in the US and/or International Financial Reporting Standards (IFRS). Public auditors and governmental auditors may also have expertise in financial statement audits, but they may not necessarily be CPAs. Internal auditors are typically employed by the company being audited and may not have the same level of independence and objectivity as external auditors.

Question 3

This type of audit is performed by independent auditors who are objective and neutral with respect to the company and the information being audited.
A)Compliance audit
B)Operational audit
C)Internal audit
D)External audit

Accepted Answer

An external audit is performed by independent auditors who are neutral and objective with respect to the company and the information being audited. They are not part of the company's internal control system and their role is to provide an unbiased opinion on the accuracy and reliability of financial statements. Compliance audits are focused on whether the company is following laws and regulations, operational audits are focused on improving efficiency and effectiveness, and internal audits are conducted by employees of the company to evaluate and improve internal controls.

Question 4

Which of the following is not one of the identified causes of information risk?
A)Audited information
B)Remote information
C)Complexity of data
D)Preparer motive

Accepted Answer

Audited information is typically considered to have lower risk than unaudited information. The other options listed (remote information, complexity of data, and preparer motive) are all potential causes of information risk.

Question 5

This type of auditor conducts audits of government agencies or income tax returns.
A)IT auditor
B)Government auditor
C)Certified Public Accountant
D)Internal auditor

Accepted Answer

A government auditor specifically conducts audits of government agencies or income tax returns, while the other options are either focused on specific areas (IT auditor) or more general (CPA, internal auditor).

Question 6

This type of audit is completed to determine whether or not the client has prepared and presented its financial statements fairly, in accordance with established financial accounting criteria.
A)GAAP audit
B)Financial statement audit
C)Compliance audit
D)Fair application audit

Accepted Answer

This type of audit is specifically focused on determining if the financial statements of the client are presented in accordance with established financial accounting criteria. This is a financial statement audit where the auditor gives an opinion on whether the financial statements of the organization are free from material misstatements, and are in conformity with the Generally Accepted Accounting Principles (GAAP).

Question 7

Which of the following is not one of the three primary types of audits?
A)Compliance audits
B)Financial statement audits
C)IT audits
D)Operational audits

Accepted Answer

The three primary types of audits are compliance audits (evaluating adherence to laws and regulations), financial statement audits (assessing accuracy and completeness of financial statements), and operational audits (examining efficiency and effectiveness of internal operations). IT audits are a specialized type of audit that focuses on an organization's IT systems and infrastructure, but they are not considered one of the three primary types.

Question 8

Which of the following scenarios does NOT impair the independence of a CPA firm from its client?
A)The lead audit partner is the sister-in-law of the client's VP of Accounting.
B)One of the auditors owns stock in a competitor of the client.
C)One of the auditors is the golf partner of the client's CEO.
D)The lead audit partner owns stock in the client.

Accepted Answer

Owning stock in a competitor of the client impairs independence due to the possibility of a financial interest in the outcome of the audit. The other scenarios also have the potential to impair independence due to personal relationships or financial interests in the client.

Question 9

Decision makers are typically forced to rely on others for information.When the source of the information is removed from the decision maker, the information stands a greater chance of being misstated.A decision maker may become detached from the source of information due to geography, organizational layers, or other factors.This describes which cause of information risk?
A)The lack of CPA independence
B)The volume and complexity of underlying data
C)The motive of the preparer
D)The remoteness of information

Accepted Answer

The statement describes how the detachment of a decision maker from the source of information can increase the risk of misstated information. This refers to the cause of information risk known as the remoteness of information.

Question 10

This type of auditor is an employee of the company he/she audits.
A)IT auditor
B)Government auditor
C)Certified Public Accountant
D)Internal auditor

Accepted Answer

An internal auditor is an employee of the company they audit. They work to ensure that the company's operations are efficient and effective, and that internal policies and procedures are being followed. The other options (IT auditor, government auditor, certified public accountant) may be employed by external organizations or agencies and would not be considered employees of the company being audited.

Question 11

This type of audit is completed in order to determine whether a company has adhered to the regulations and policies established by contractual agreements, governmental agencies, or some other high authority.
A)Compliance audit
B)Operational audit
C)Information audit
D)Financial statement audit

Accepted Answer

A compliance audit is specifically designed to evaluate whether an organization is following the laws, regulations, and contractual obligations that apply to its operations. These audits are usually conducted by external auditors who specialize in regulatory compliance and are highly skilled in identifying areas of noncompliance. By conducting a compliance audit, a company can demonstrate its commitment to ethical behavior and accountability, as well as to protecting its reputation and avoiding legal penalties.

Question 12

This type of auditor specializes in the information systems assurance, control, and security.They may work for CPA firms, government agencies, or with the internal audit group.
A)IT auditor
B)Government auditor
C)Certified Public Accountant
D)Internal auditor

Accepted Answer

An IT auditor specializes in the assurance, control, and security of information systems. They may work for a variety of organizations, including CPA firms, government agencies, or internal audit groups, but their focus is specifically on IT systems.

Question 13

Accounting services that improve the quality of information provided to the decision maker, an audit being the most common type of this service, is called:
A)Compliance services
B)Assurance services
C)Substantive services
D)Operational services

Accepted Answer

Assurance services provide a level of confidence to decision makers regarding the quality and reliability of financial information. Audits are one of the most common types of assurance services, but other examples include reviews and agreed-upon procedures. Compliance services, on the other hand, focus on ensuring that an organization is meeting its legal and regulatory obligations, while substantive services involve specific testing and analysis of financial transactions. Operational services relate more to the day-to-day management of a business, such as budgeting and forecasting.

Question 14

This type of audit is completed to assess the operating policies and procedures of a client for efficiency and effectiveness.
A)Efficiency audit
B)Effectiveness audit
C)Compliance audit
D)Operational audit

Accepted Answer

An operational audit evaluates the efficiency and effectiveness of a client's policies and procedures for achieving their objectives. It assesses how well resources are utilized, identifies process improvements, and evaluates the overall performance of the organization.

Question 15

The IT environment plays a key role in how auditors conduct their work in all but which of the following areas:
A)Consideration of risk
B)Consideration of information fairness
C)Design and performance of audit tests
D)Audit procedures used

Accepted Answer

Information fairness is not a standard term used in the context of IT auditing. IT environments primarily affect the consideration of risk, the design and performance of audit tests, and the audit procedures used.

Question 16

The chance that information used by decision makers may be inaccurate is referred to as:
A)Sample risk
B)Data risk
C)Audit trail risk
D)Information risk

Accepted Answer

The term "information risk" refers to the potential that the information used by decision makers may be inaccurate or unreliable, which can result in poor decision-making and negative consequences for the organization. Therefore, option D is the correct answer. Sample risk, data risk, and audit trail risk are also relevant concepts, but they are not specifically related to the accuracy of information used for decision-making.

Question 17

An important requirement of CPA firms is that they must be ________ with regard to the company being audited.The requirement allows CPA firms to provide a completely unbiased opinion on the information it audits.
A)Neutral
B)Well-informed
C)Materially invested
D)All of the above

Accepted Answer

Being neutral is the most important requirement for CPA firms as it ensures that they do not have any financial, personal or other interests in the company being audited which could affect their judgment and opinion. This neutrality allows them to provide an unbiased and objective opinion on the financial information being audited. The other options (B and C) do not accurately reflect this requirement.

Question 18

The independence of a CPA could be impaired by:
A)Having no knowledge of the company or the company management
B)By owning stock of a similar company
C)Having the ability to influence the client's decisions
D)Being married to a stockbroker

Accepted Answer

Independence of a CPA is impaired if they have the ability to influence the client's decisions, as it compromises their objectivity and impartiality in auditing or financial reporting.

Question 19

Which of the following terms in not associated with a financial statement auditor's requirement to maintain independence?
A)Objectivity
B)Neutrality
C)Professional skepticism
D)Competence

Accepted Answer

Competence relates to the auditor's ability to perform the audit in accordance with professional standards, but it is not directly related to their independence. Independence is critical to ensure that the auditor is free from any conflicts of interest or bias that may affect their ability to provide an objective and impartial opinion on the financial statements. Objectivity, neutrality, and professional skepticism are all important requirements for maintaining independence as an auditor.

Question 20

The main purpose of an audit is to assure users of the financial information about the:
A)Effectiveness of the internal controls of the company
B)Selection of the proper GAAP when preparing financial statements
C)Proper application of GAAS during the examination
D)Accuracy and completeness of the information

Accepted Answer

The main purpose of an audit is to provide reasonable assurance that the financial statements are free from material misstatements, whether due to fraud or error, and to assure users that the information contained therein is accurate and complete. While auditing internal controls, selecting proper GAAP, and applying GAAS are important aspects of the audit process, they are not the main purpose of the audit.

Quiz 7: Auditing Information Technology-Based Processes

A type of assurance services that involves accumulating and analyzing support for the information provided by management is called an:

Financial statement audits are performed by _________ who have extensive knowledge of generally accepted accounting principles (GAAP) in the US and/or International Financial Reporting Standards (IFRS) .

This type of audit is performed by independent auditors who are objective and neutral with respect to the company and the information being audited.

Which of the following is not one of the identified causes of information risk?

This type of auditor conducts audits of government agencies or income tax returns.

This type of audit is completed to determine whether or not the client has prepared and presented its financial statements fairly, in accordance with established financial accounting criteria.

Which of the following is not one of the three primary types of audits?

Which of the following scenarios does NOT impair the independence of a CPA firm from its client?

This type of auditor is an employee of the company he/she audits.

This type of audit is completed in order to determine whether a company has adhered to the regulations and policies established by contractual agreements, governmental agencies, or some other high authority.

This type of auditor specializes in the information systems assurance, control, and security.They may work for CPA firms, government agencies, or with the internal audit group.

Accounting services that improve the quality of information provided to the decision maker, an audit being the most common type of this service, is called:

This type of audit is completed to assess the operating policies and procedures of a client for efficiency and effectiveness.

The IT environment plays a key role in how auditors conduct their work in all but which of the following areas:

The chance that information used by decision makers may be inaccurate is referred to as:

An important requirement of CPA firms is that they must be ________ with regard to the company being audited.The requirement allows CPA firms to provide a completely unbiased opinion on the information it audits.

The independence of a CPA could be impaired by:

Which of the following terms in not associated with a financial statement auditor's requirement to maintain independence?

The main purpose of an audit is to assure users of the financial information about the: