Question 1

What type of evidence would provide the highest level of assurance in an attestation engagement?

Accepted Answer

Evidence obtained from independent sources provides the highest level of assurance in an attestation engagement as it is not influenced or biased by the client and is considered more reliable and objective. Evidence secured solely from within the entity or obtained indirectly may be influenced or biased by the client and may not provide sufficient reliability for the auditor to form an opinion. Evidence obtained from multiple internal inquiries may provide some level of assurance, but it is still considered less reliable than evidence obtained from independent sources.

Question 2

An auditor selected items from the client's detailed inventory listing (that agreed to the financial statements).During the physical inventory observation,the auditor then found each item selected and counted the number of units on hand.Assuming that the amount on hand was the same as the amount in the client's detailed inventory listing,this procedure most likely would provide evidence concerning management's assertion of

Accepted Answer

By physically observing and counting the items, the auditor is obtaining evidence regarding the existence assertion – that the inventory items actually exist and are owned by the client. This procedure does not provide evidence related to completeness, valuation, presentation and disclosure, or rights and obligations.

Question 3

An auditor selected items for test counts from the client's warehouse during the physical inventory observation.The auditor then traced these test counts into the detailed inventory listing that ultimately agreed to the financial statements.This procedure most likely provided evidence concerning management's assertion of

Accepted Answer

A

Question 4

Which of the following questions would be inappropriate for an auditor to ask a client when exhibiting an appropriate level of professional skepticism while completing an audit procedure related to the internal control system?

Accepted Answer

Asking which employee is a fraudster assumes without evidence that an employee is committing fraud, and could damage the client's reputation and culture. It also shows a lack of professional skepticism, as the auditor should be looking for evidence of fraud rather than assuming it is present.

Question 5

An auditor has substantial doubt about the entity's ability to continue as a going concern for a reasonable period of time because of negative cash flows and working capital deficiencies.Under these circumstances,the auditor would be most concerned about the

Accepted Answer

The auditor's concern about the entity's ability to continue as a going concern for a reasonable period of time due to negative cash flows and working capital deficiencies may have a material impact on the financial statements. The auditor needs to consider the possible effects on the financial statements and disclose the same in the auditor's report. Therefore, the auditor would be most concerned about the possible effects on the entity's financial statements.

Question 6

The confirmation of an account payable balance selected from the general ledger provides primary evidence regarding which management assertion?

Accepted Answer

The confirmation of an account payable balance selected from the general ledger provides primary evidence regarding the existence assertion, which verifies that the account payable balance actually exists and is not fictitious.

Question 7

If an auditor is performing procedures related to the information that is contained in the client's pension footnote,he/she is most likely obtain evidence concerning management's assertion about

Accepted Answer

The pension footnote is related to the presentation and disclosure of pension related information. Therefore, the auditor is most likely obtaining evidence concerning management's assertion about the presentation and disclosure of the pension information.

Question 8

Which of the following management assertions is an auditor most likely testing if the audit objective states that all inventory on hand is reflected in the ending inventory balance?

Accepted Answer

The audit objective of verifying that all inventory on hand is reflected in the ending inventory balance relates to the completeness assertion. The auditor is trying to ensure that all inventory is included in the ending balance, and none has been left out. The other assertions, such as rights, valuation, and presentation, may also be relevant when auditing inventory, but they do not directly relate to this specific audit objective.

Question 9

According to PCAOB Auditing Standard No.2201 (AS 2201),the auditor should identify significant accounts and disclosures and their relevant assertions.Which of the following financial statement assertions is not explicitly identified in AS 2201?

Accepted Answer

AS 2201 identifies the assertion of "Valuation or Allocation," but not "Accuracy" as a separate assertion. "Accuracy" is often considered part of "Valuation or Allocation" or "Completeness."

Question 10

In auditing the long term debt account,an auditor's procedures most likely would focus primarily on management's assertion of

Accepted Answer

The answer of In auditing the long term debt account,an...

Question 11

Which of the following is a management assertion regarding account balances at the period end?

Accepted Answer

The management assertion regarding account balances at the period end is that "the entity holds or controls the rights to assets, and liabilities are obligations of the entity." This assertion relates to the completeness and existence of account balances, and asserts that all assets and liabilities included in the balance sheet actually exist and are the legal obligations of the entity. The other options (A, B, and D) relate to other management assertions: A relates to occurrence and completeness, B relates to accuracy and classification, and D relates to completeness and accuracy.

Question 12

When testing the completeness assertion for a liability account,an auditor ordinarily works from the

Accepted Answer

When testing the completeness assertion for a liability account, the auditor works from potentially unrecorded items to the financial statements. This is because the auditor is trying to ensure that all liabilities have been recorded in the financial statements. By starting with potentially unrecorded items, the auditor can identify any liabilities that may not be included in the financial statements and ensure that they are properly recorded and disclosed. Working from the financial statements to potentially unrecorded items would be ineffective in testing completeness as it assumes that all liabilities have been properly recorded in the financial statements, which may not be the case.

Question 13

A practitioner is engaged to express an opinion on management's assertion that the square footage of a warehouse offered for sale is 150,000 square feet.The practitioner should refer to which of the following sources for professional guidance?

Accepted Answer

Statements on Standards for Attestation Engagements (SSAEs) provide guidance on performing attestation engagements, which includes the examination of management's assertion. Specifically, SSAE No. 18, Attestation Standards: Clarification and Recodification, provides guidance on the examination of management's assertion regarding the square footage of the warehouse. The other answer choices are not relevant to this type of engagement.

Question 14

An auditor traces the serial numbers on equipment to a nonissuer's sub-ledger.Which of the following management assertions is supported by this test?

Accepted Answer

Tracing the serial numbers on equipment to a nonissuer's sub-ledger supports the management assertion of completeness, as it ensures that all equipment is being recorded and accounted for in the company's records.

Question 15

To be proficient as an auditor,a person must first be able to accomplish which of these tasks in a decision-making process?

Accepted Answer

To be proficient as an auditor, a person must first recognize the financial assertions made in management's financial statements and footnotes so they can understand what needs to be verified or audited. The other tasks listed are important steps in the decision-making process for an auditor but cannot be accomplished without first recognizing the financial assertions made in management's financial statements and notes.

Question 16

Which of the following is an underlying condition that in part creates the demand by users for reliable information?

Accepted Answer

All of these factors create a demand for reliable information. Numerous and complex economic transactions require accurate financial information to be able to make informed decisions. Time-sensitive decisions require timely and up-to-date information. Distance and time separation means that the accounting records may not be easily accessible and reliable information is necessary for decision-making. Financial decisions that are important to investors and users require accurate and trustworthy information to maintain confidence in the financial system.

Question 17

The audit objective that all transactions and accounts that should be presented in the financial statements are in fact included is related to which of the PCAOB assertions?

Accepted Answer

The completeness assertion states that all transactions and accounts that should be presented in the financial statements are included.

Question 18

Which of the following types of audit evidence provides the least assurance of reliability?

Accepted Answer

Prenumbered receiving reports completed by the client's employees provide the least assurance of reliability because they are internal documents and their reliability depends on the effectiveness of the client's internal controls. Other options involve external evidence or third-party confirmations, which generally offer higher assurance.

Question 19

During an audit of an entity's stockholders' equity accounts,the auditor determines whether there are restrictions on retained earnings resulting from loans,agreements or state law.This audit procedure most likely is intended to verify management's assertion of

Accepted Answer

The audit procedure of determining restrictions on retained earnings is related to the presentation and disclosure assertion of management. The auditor is verifying if the entity's financial statements properly disclose any restrictions on the retained earnings resulting from loans, agreements, or state law.

Question 20

Cutoff tests designed to detect purchases made before the end of the year that have been recorded in the subsequent year provide assurance about management's assertion of

Accepted Answer

Cutoff tests are used to detect whether all transactions have been recorded in the correct accounting period. Therefore, they provide assurance about the completeness assertion made by management.

Quiz 1: Auditing and Assurance Services