ACCT 543 Midterm: Audit exam 1 - Multiple Choice.docx

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turquoisepanda505

29 Oct 2014

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To plan the audit and determine the scope of audit procedures to be performed. Understanding a client"s system of internal control can help the auditor assess risk and identify areas where financial statement misstatements might be more likely: preplanning the audit includes: Ensuring the independence of the audit team and audit firm. Increased consulting services to audit clients, enron and other scandals, To achieve its strategies, a business formulates objectives and implements processes, which are carried out through the entity"s information and internal control. Transactions are conducted to ensure that the processes are properly executed, captured, and processed: which of the following is correct regarding the types of audits over which the. Management has the primary responsibility to ensure that the company"s financial statements are prepared in accordance with gaap and the auditor provides reasonable assurance that the statements are free of material misstatement: the public company accounting oversight board:

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1â33. Match the following defi nitions (or partial defi nitions) of the various types of services to the
appropriate service. Each service may be used once or not at all.
LO 1-1, 2, 6
Defi nition (or Partial Defi nition) Service
a. An attest engagement in which the CPAs agree to perform
procedures for a specifi ed party and issue a report that is
restricted to use by that party.
b. An engagement designed to express limited assurance
relating to subject matter or an assertion.
c. An engagement in which the CPAs issue an examination,
a review, or an agreed-upon procedures report on subject
matter or an assertion about subject matter that is the
responsibility of another party (e.g., management).
d. An examination designed to provide an opinion that is the
CPAâs highest level of assurance that the fi nancial statements
follow generally accepted accounting principles, or
another acceptable basis of accounting.
e. As required by the Sarbanes-Oxley Act and the Public Company
Accounting Oversight Board, an audit that includes
providing assurance on both the fi nancial statements and
internal control over fi nancial reporting.
f. Professional services that enhance the quality of information,
or its context, for decision makers.
g. An attest engagement designed to provide the highest
level of assurance that CPAs provide on an assertion.

1. Agreed-upon
procedures engagement
2. Assurance services
3. Attest engagement
4. Audit of fi nancial
statements
5. Compliance audit
6. Examination
7. Integrated audit
8. Operational audit
9. Review

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1â28. Multiple Choice Questions
Select the best answer for each of the following items and give reasons for your choice.
a. Which of the following best describes the relationship between assurance services and
attest services?
(1) While attest services involve fi nancial data, assurance services involve nonfi nancial data.
(2) While attest services require objectivity, assurance services do not require objectivity.
(3) Both attest and assurance services require independence.
(4) Attest and assurance services are different terms referring to the same types of services.
b. Which of the following has primary responsibility for the fairness of the representations
made in fi nancial statements?
(1) Clientâs management.
(2) Independent auditor.
(3) Audit committee.
(4) AICPA.
c. The most important benefi t of having an annual audit by a public accounting fi rm is to:
(1) Provide assurance to investors and other outsiders that the fi nancial statements are reliable.
(2) Enable offi cers and directors to avoid personal responsibility for any misstatements in
the fi nancial statements.
(3) Meet the requirements of government agencies.
(4) Provide assurance that illegal acts, if any exist, will be brought to light.
d. The Sarbanes-Oxley Act created the Public Company Accounting Oversight Board
(PCAOB). Which of the following is not one of the responsibilities of that board?
(1) Establish independence standards for auditors of public companies.
(2) Review fi nancial reports fi led with the SEC.
(3) Establish auditing standards for audits of public companies.
(4) Sanction registered audit fi rms.
e. Which of these organizations has the responsibility to perform inspections of auditors of
public companies?
(1) American Institute of Certifi ed Public Accountants.
(2) Securities and Exchange Commission.
(3) Financial Accounting Standards Board.
(4) Public Company Accounting Oversight Board.
f. Governmental auditing, in addition to including audits of fi nancial statements, often
includes audits of effi ciency, effectiveness, and:
(1) Adequacy.
(2) Evaluation.
(3) Accuracy.
(4) Compliance.
g. In general, internal auditorsâ independence will be greatest when they report directly to the:
(1) Financial vice president.
(2) Corporate controller.
(3) Audit committee of the board of directors.
(4) Chief executive offi cer.
h. Which of the following did not precipitate the passage of the Sarbanes-Oxley Act of 2002
to regulate public accounting fi rms:
(1) Disclosures related to accounting irregularities at Enron and WorldCom.
(2) Restatements of fi nancial statements by a number of public companies.

(3) Conviction of the accounting fi rm of Arthur Andersen LLP.
(4) Ethical scandals at the AICPA.
i. Which of the following organizations establishes accounting standards for U.S. government
agencies?
(1) The Financial Accounting Standards Board.
(2) The Governmental Accounting Standards Board.
(3) The Federal Accounting Standards Advisory Board.
(4) The Public Company Accounting Oversight Board.
j. Which of the following is correct about forensic audits?
(1) All audit engagements are forensic in nature.
(2) Forensic audits are performed by law fi rms; they are not performed by CPA fi rms.
(3) Forensic audits are equivalent to compliance audits.
(4) Forensic audits are usually performed in situations in which fraud has been found or is
suspected.
k. What best describes the purpose of the auditorsâ consideration of internal control in a
fi nancial statement audit for a nonpublic company?
(1) To determine the nature, timing, and extent of audit testing.
(2) To make recommendations to the client regarding improvements in internal control.
(3) To train new auditors on accounting and control systems.
(4) To identify opportunities for fraud within the clientâs operations.
l. Which of the following is an example of a compliance audit?
(1) An audit of fi nancial statements.
(2) An audit of a companyâs policies and procedures for adhering to environmental laws
and regulations.
(3) An audit of a companyâs internal control over fi nancial reporting.
(4) An audit of the effi ciency and effectiveness of a companyâs legal department.

coralbadger702

Write answers to each of the five (5) situations

described below addressing the required criteria

(i.e. 1 & 2) in each independent case. You may use a tabulated format if helpful having

âThreatsâ, âSafeguardsâ and âObjective Assessmentâ as column headings.

You have just been employed as a junior auditor at the chartered accountant firm of AFG. Upon

joining the firm; the partners requested that you re

view the firmâs audit clients to ensure that the

independence requirements of APES 110 are being met for the financial year ending June 2017.

Your review has revealed the following:

(a)

Other than the provision of audit services, AFG is also reputable for the quality of its

non-assurance services. The non-assurance service department of AFG is highly

regarded because they have several experienced and qualified members. AFGâs strict

policy does not allow the members of the non-assurance department to participate in any

of their assurance services. AFG has provided Silver Fabricators Ltd (SFL), a listed

company, audit services for the last 3 years. This year AFG has decided to provide some

bookkeeping services to three major subsidiaries out of the four subsidiaries owned by

SFL.

(b)

Billie Jean, a senior auditor at AFG, has b

een on the audit team of Alliance Ltd for a

number of years. She was recently thinking of buying a land outside Perth to build a

summer house and she has already spoken to her bankers for loan. As the CFO of

Alliance has known Billie for a number of years now, he decided to help Billie by

seeking the approval of the board in order for Alliance to act as a guarantor for her loan.

(c)

Sandy Adnan, one of the senior partners of AFG responsible for the Sunbeam Ltdâs audit

team for the financial year ending June 2017

, recently came back from a 6 nights and 7

days cruise with her partner. It was an expensive trip but she received a 65% discount.

The CEO of Sunbeam Ltd arranged this concession for her as a gesture of his

appreciation for a job well done.

(d)

Aaron Parker is the current senior manager on the audit of Resources Techno Ltd.

Resources specializes in the production of electronic equipment and they have

showrooms only in Melbourne and NSW. Besides working for AFG, Aaron also owns a

car showroom in Perth (a family business). The business is not doing very well at the

moment. After having a brief conversation with CEO of Resources, he decided that he is

going to display and promote Resourcesâs equipment here in WA. Aaron has informed

you that this is not going to be a problem si

nce he is just going to promote Resourcesâs

product.

(e)

Larry Miller, the current senior manager on the audit team of Admiralty Ltd, the newest

client of AFG. Admiralty specialises in the production of mining equipment. Larry used

to work for Admiralty Ltd, as one of their senior accountants. He left Admiralty during

the end of 2013 and joined AFG on March 2016.

Required (

10 marks)

For each of the independent situations above, and using the conceptual framework in APES 110

(Code of Ethics for Professional Accountants), answer the following questions:

Identify potential threat(s) to independence & recommend safeguards (if any) to reduce

the independence threat(s) identified.

(5 marks)

Provide an objective assessment of whether audit independence can be achieved.

(5 marks)

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ACCT 543 Midterm: Audit exam 1 - Multiple Choice.docx

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