Question 1

Tests of details of balances only involve the use of comparisons and relationships to assess the overall reasonableness of account balances.

Accepted Answer

Tests of details of balances involve detailed testing of individual accounts to provide specific evidence about the account balance. Comparisons and relationships may be used as part of the testing process, but they are not the only methods used to assess the reasonableness of account balances.

Question 2

Although not an insurer or guarantor of the fairness of the presentations in the statements, the auditor has considerable responsibility for notifying users whether the statements are properly stated.

Accepted Answer

The statement is true. The auditor's responsibility is to express an opinion on whether the financial statements are presented fairly, in all material respects, in accordance with the applicable financial reporting framework.

Question 3

Audits are conducted by performing tests of transactions and separate tests on closing balances in the balance sheet.

Accepted Answer

The answer of Audits are conducted by performing tests of...

Question 4

When an auditor informs the client's audit committee of an illegal act discovered during an audit, it is acceptable for this communication to be either oral or written.

Accepted Answer

According to auditing standards, the auditor's communication to the audit committee regarding an illegal act discovered during an audit can be either oral or written. However, it is usually advisable for such communication to be in writing to ensure clarity, documentation, and proper record-keeping.

Question 5

Auditors have a higher degree of responsibility for detecting direct- effect illegal acts than indirect- effect illegal acts.

Accepted Answer

Auditors are responsible for detecting direct-effect illegal acts, which have a direct impact on the financial statements, such as fraud or embezzlement. They have a lower level of responsibility for detecting indirect-effect illegal acts, such as environmental violations, which may have an indirect impact on the financial statements. However, auditors still have a duty to inquire and report if they become aware of any illegal acts during the course of their audit.

Question 6

The cutoff objective, 'transactions near the balance sheet date are recorded in the proper period,' is a transaction- related, not a balance- related, audit objective.

Accepted Answer

The answer of The cutoff objective, 'transactions near the balance...

Question 7

Responsibility for the fair presentation of financial statements rests with the client's management, not with the auditor.

Accepted Answer

The management of a company is responsible for preparing and fairly presenting the financial statements in accordance with the applicable financial reporting framework. The auditor's role is to express an opinion on the fairness of those financial statements based on their audit.

Question 8

ASA 200 states: The objective of an audit of a financial report is to enhance the degree of confidence of intended users in the financial statements.

Accepted Answer

ASA 200 states that enhancing the degree of confidence of intended users in the financial statements is the objective of an audit of a financial report.

Question 9

Distinguish between 'balance- related' and 'transaction- related' audit objectives. Which are more numerous?

Accepted Answer

The answer of Distinguish between 'balance- related' and 'transaction- related'...

Question 10

The completeness assertion concerns whether recorded transactions included in the financial statements actually occurred.

Accepted Answer

The completeness assertion concerns whether all transactions and accounts that should be included in the financial statements are indeed included. The assertion you described relates to the occurrence assertion, which is concerned with whether recorded transactions have actually occurred.

Question 11

There is no distinction made by auditing standards between an auditor's responsibility for searching for errors and his responsibility for searching for fraud.

Accepted Answer

Auditing standards require auditors to search for errors and frauds during the course of the audit. There is no distinction made between the auditor's responsibility for searching for errors and frauds. Both are considered important and should be addressed during the audit process.

Question 12

Auditors have found that the most efficient way to conduct audits is to focus primarily on testing classes of transactions and performing minimal or no tests of ending account balances.

Accepted Answer

This statement is false. Auditors must test both classes of transactions and ending account balances to obtain sufficient evidence to support their audit opinion. Focusing only on one area and neglecting the other can lead to incomplete and unreliable audit findings.

Question 13

An audit generally provides no assurance that indirect- effect illegal acts will be detected.

Accepted Answer

Indirect-effect illegal acts refer to situations where illegal actions of a company's employees, suppliers or customers may have an indirect impact on the financial statements. Since the audit only focuses on the financial statements and internal controls of the company, it may not detect such illegal actions. Therefore, the statement is true.

Question 14

Balance- related audit objectives are usually applied to the ending balance in income statement accounts; transaction- related audit objectives are usually applied to transactions reflected in balance sheet accounts.

Accepted Answer

The statement is the opposite of what is true. Balance-related audit objectives are usually applied to the ending balance in balance sheet accounts, while transaction-related audit objectives are usually applied to transactions reflected in income statement accounts.

Question 15

Discuss the actions an auditor should take when the auditor discovers an illegal act.

Accepted Answer

The answer of Discuss the actions an auditor should take...

Question 16

The objective of the audit of financial statements by an independent auditor is to verify that the financial statements are free of misstatements and accurately present the company's financial position and results of operations.

Accepted Answer

The answer of The objective of the audit of financial...

Question 17

Tests of controls are normally performed only on those internal controls the auditor believes have been operating effectively during the period under audit.

Accepted Answer

Tests of controls are performed not only on internal controls the auditor believes have been operating effectively, but also on those that may not have been functioning properly or may be at risk of material weakness. The purpose of testing controls is to provide assurance that the controls are operating effectively throughout the entire period under audit.

Question 18

The effect of a violation of the completeness transaction- related audit objective for cash disbursements transactions would be an overstatement of cash disbursements.

Accepted Answer

The violation of the completeness objective for cash disbursements transactions would likely result in an understatement of cash disbursements, as completeness ensures that all transactions that should have been recorded have been recorded.

Question 19

Professional skepticism is an attitude that includes a critical assessment of audit evidence, and should be applied when planning and performing all aspects of the engagement.

Accepted Answer

Professional skepticism is a fundamental concept in auditing that requires auditors to approach their work with a questioning mindset and to use their judgment to assess the validity and reliability of audit evidence. It should be applied throughout the audit process, from planning to the conclusion of the engagement.

Question 20

When an auditor believes that an illegal act may have occurred, the first step he or she should take is to inquire of management at a level above those likely to be involved in the potential illegal act.

Accepted Answer

The auditor should inquire of management at a level above those likely to be involved in the potential illegal act in order to determine whether an illegal act has in fact occurred. This is in accordance with auditing standards.

Quiz 4: Audit Responsibilities and Objectives