Which of the following best describes the reason why an independent auditor reports on financial statements.
(1) A misappropriation of assets may exist, and it is more likely to be detected by independent auditors
(2) Different interests may exist between the company preparing the statements and the persons using the statements.
(3) A misstatement of account balanced may exist and is generally corrected as the result of the independent auditor’s work.
(4) Poorly designed internal controls may be in existence.
An independent audit aids in the communication of economic data because the audit
(1) Confirms the accuracy of management’s financial responsibilities
(2) Lends credibility to the financial statements
(3) Guarantees that financial data are fairly presented.
(4) Assures the readers of financial statements that any fraudulent activity has been corrected.
The major reason an independent auditor gathers evidence is to
(1) Form an opinion on the financial statements.
(2) Detect fraud.
(3) Evaluate management.
(4) Assess control risk.
An independent auditor has the responsibility to design the audit to procide reasonable assurance of detecting errors and fraud that might have a material effect on the financial statements. Which of the following, if material, is a fraud as defined in auditing standards?
(1) Misappropriation of an asset or groups of assets.
(2) Clerical mistakes in the accounting data underlying the financial statements.
(3) Mistakes in the application of accounting principles.
(4) Misinterpretation of facts that existed when the financial statements were prepared.
What assurance does the auditor provide that errors, fraud, and direct-effect illegal acts that are material to the financial statements will be detected.
Errors Fraud Direct-Effect Illegal Acts
(1) Limited Negative Limited
(2) Reasonable Reasonable Reasonable
(3) Limited Limited Reasonable
(4) Reasonable Limited Limited
Which of the following describes why a properly designed and executed audit may not detect a material misstatement in the financial statements resulting from fraud?
(1) Audit procedures that are effective for detecting unintentional misstatements may be ineffective for an intentional misstatement that is concealed through collusion.
(2) An audit is designed to provide reasonable assurance of detecting material errors, but there is no similar responsibility concerning fraud.
(3) The factors considered in assessing control risk indicated an increased risk of intentional misstatements, but only a low risk of unintentional misstatements.
(4) The auditor did not consider factors influencing audit risk for account balances that have effects pervasive to the financial statements taken as a whole.
Chapter 7 CPA Multiple Choice Questions
Which of the following types of documentary evidence should the auditor consider to be the most reliable?
(1) A sales invoice issued by the client and supported by a delivery receipt from an outside trucker.
(2) Confirmation of an account payable balance mailed by and returned directly to an auditor.
(3) A check, issued by the company and bearing the payee’s endorsement, that is included with the bank statements mailed directly to the auditor.
(4) An audit schedule prepared by the client’s controller and reviewed by the client’s treasurer.
The most reliable type of audit evidence that an auditor can obtain is
(1) Physical examination by the auditor.
(2) Calculations by the auditor from company records.
(3) Confirmations received directly from third parties.
(4) External documents
Audit evidence can come in different forms with different degrees of persuasiveness. Which of the following is the least persuasive type of evidence?
(1) Vendor’s invoice.
(2) Bank statements obtained from the client.
(3) Computations made by the auditor.
(4) Prenumbered sales invoices.
Which of the following presumptions is correct about the…