Chapter 7: OVERVIEW OF THE FINANCIAL STATEMENT AUDIT PROCES

1. Signals that an auditor does not express an opinion.

A. Unqualified opinion
B. Qualified opinion
C. Adverse opinion
D. Disclaimer of opinion

2. This includes discussions of factual and technical information about the client, the clients business
service provided.
A. Considering events during the audit
B. Analyzing the activities within the audit
C. Producing recommendations
D. All of the above

3. The team considers the activities that were successful and those for which improvements are possi
A. Considering events during the audit
B. Analyzing the activities within the audit
C. Producing recommendations
D. All of the above

4. This phase of audit process involves assessing and evaluating the quality of delivery of the audit se
A. Audit planning
B. Debriefing
C. Audit reporting
D. Audit review
5. Debriefing notes are discarded when the audit plan for the following years audit is _______.
A. Reliable
B. Significant
C. Complete
D. Reviewed
6. Consider the following statements:

I. The audit of the financial statements relieve management and those charged with govern
responsibilities.

II. The auditor is entitled to expect that management and those charged with governance w
available to the auditor some of the information the auditor requires for the purpose of the a
A. Both statements are true.
B. First statement is true.
C. Second statement is true.
D. Both statements are false.

7. This enhances the auditor's ability to act with integrity, to be objective and to maintain professiona
A. Auditor Independence

B. Audit Materiality
C. Professional Judgement
D. Fundamental Principles

8. Professional skepticism includes being alert to, except:

A. Conditions that may indicate possible fraud.
B. Circumstances that suggest the need for audit procedures in addition to those required b
C. Audit evidence that concur with other evidence obtained.

D. Information that brings into question the reliability of documents and responses to inqui
as audit evidence.
9. In performing an audit, auditors may be required to comply with:
A. each of the PSAs relevant to the audit.
B. other professional, legal or regulatory requirements in addition to the PSAs.
C. Both A and B
D. Answer not given
10. Which of the following is not correct?
A. Audit evidence is cumulative in nature.

B. Assertions include presentation and disclosure, existence and occurrence, completeness

and allocation.
C. Materiality is a relative concept.
D. Auditors are expected to address all information that may exist.

11. When there is the possibility of human errors or mistakes or of controls being circumvented by col
inappropriate management override, there is a:
A. Audit Risk
B. Control Risk
C. Detection Risk
D. Inherent Risk
12. This risk cannot be reduced to zero because the auditor usually does not examine all of a class of
acount balance, or disclosure and because of other factors.
A. Audit Risk
B. Control Risk
C. Detection Risk
D. Inherent Risk

13. This means that the auditor can not possibly expect to detect all material misstatements; instead,
should perform audit procedures to increase the likelihood of detecting these misstatements.
A. Reasonable Assurance
B. Limited Assurance
C. Professional Skepticism
D. Audit Risk

14. The audit phases generally includes the following phases, except:
A. Substantive Testing
B. Study and Evaluation of Internal Controls
C. Audit Planning
D. Issuance of the Assurance Report

15. For recurring audits, which of the following may cause the auditor to send a new engagement lette
A. Any revised or special terms of the engagement.
B. Any indication that the client understands the objective and scope of the audit.
C. A recent change of personnel.
D. A significant change in the scope or size of the client's business.

ent, the clients business and the audit

improvements are possible.

f delivery of the audit service team.

audit is _______.

ose charged with governance of their

arged with governance will make

s for the purpose of the audit.

to maintain professional skepticism.

dition to those required by the PSAs.

s and responses to inquiries to be used

to the PSAs.

ccurrence, completeness, and valuation

eing circumvented by collusion or

examine all of a class of transactions,

misstatements; instead, the auditor

misstatements.

a new engagement letter?

pe of the audit.

Chapter 8: AUDIT PLANNING

1. There is a/an _______ relationship between materiality and the level of audit risk or amount of evide
accumulate.
A. Direct
B. Crossed
C. Inverse
D. Intimate

2. Materiality should be considered by the auditor in the _____ to determine the scope of audit procedu
A. Completion Phase
B. Planning Stage
C. Working-process Stage
D. None of the above

3. Materiality should be considered by the auditor in the _______ of the audit to evaluate the effect of m
the financial statements.
A. Completion Phase
B. Planning Stage
C. Working-process Stage
D. None of the above
4. The auditor should determine the amount of misstatement that could be:
A. Essential to everybody
B. Able to provide him reasonable assurance in the reporting period
C. Material to the financial statements taken as a whole
D. All of the above
5. Which of the following is not a major audit planning activity?
A. Determining the need for experts.
B. Identifying related parties.
C. Preparation of preliminary audit programs.
D. None of the above
6. These are procedures performed to obtain an understanding of the entity and its environment, and
assess the risks of material misstatement.
A. Analytical Procedures
B. Risk Assessment Procedures
C. Pre-engagement Procedures
D. Substantive Procedures

7. The auditor's understanding of the entity and its environment consists of an uderstanding of the fol
A. Selection and application of accounting policies
B. Measurement and reporting of the entity's financial performance
C. Industry, regulatory and other internal factors

D. All of the above

8. It results from significant conditions, events, circumstances, actions or inactions that could adverse
entity's ability to achieve its objectives and execute its strategies.
A. Audit Risk
B. Risk of material misstatement
C. Control Risk
D. Business Risk

9. It set to reduce to an appropriately low level the probability that the aggregate of uncorrected and u
misstatements in the financial statements exceeds materiality for the financial statements as a whole
A. Completion Materiality
B. Planning Materiality
C. Performance Materiality
D. Financial Statement Materiality

10. It is the amount of planning materiality that is allocated to an account balance or class of transact
A. Likely Misstatements
B. Tolerable Misstatements
C. Possible Misstatements
D. Material Misstatements
11. These transactions are unusual, either due to size or nature, and therefore occur infrequently.
A. Financial Transactions
B. Non-Financial Transactions
C. Routine Transactions
D. Non-routine Transactions
12. A party is related to an entity if:
A. The party is an associate of the entity.
B. The party is a member of the board of directors of the entity.
C. The party is a partnership in which the entity is a partner.
D. None of the above

13. These are evaluations of financial information made by a study of plausible relationships among b
non-financial data.
A. Analytical Procedures
B. Risk Assessment Procedures
C. Pre-engagement Procedures
D. Substantive Procedures
14. The scope of an audit engagement includes the following, except:
A. Availability of client personnel and data
B. Reporting currency to be used
C. Business-specific reporting requirements

D. Expected audit coverage

15. It is a list of procedures (tests of controls or substantive tests) used to gather sufficient appropriat
A. Internal Control Program
B. Audit Program
C. Assurance Program
D. Risk Program

t risk or amount of evidence to

he scope of audit procedures.

o evaluate the effect of misstatement on

nd its environment, and to identify and

n uderstanding of the following:

tions that could adversely affect the

gate of uncorrected and undetected

al statements as a whole.

ance or class of transactions.

e occur infrequently.

le relationships among both financial and

her sufficient appropriate audit evidence.

Chapter 5 Answer Key

Chapter 6 Answer Key

1. D
2. A
3. B
4. B
5. C
6. D
7. A
8. C
9. B
10. D
11. B
12. C
13. A
14. D
15. A

1. C
2. B
3. A
4. C
5. D
6. B
7. A
8. D
9. C
10. B
11. D
12. A
13. A
14. C
15. B