Audit MCQ – Do not need a long explanation 1. Which of the…

Audit MCQ – Do not need a long explanation
1. Which of the following statements best describes the auditor’s responsibility for detecting fraud?
a. The auditor is responsible for the failure to detect fraud only when such failure clearly results from the non-performance of audit procedures specifically described in the engagement letter.
b. The auditor must extend auditing procedures to actively search for evidence of fraud where the examination indicates that fraud may exist.
c. The auditor must consider the need to extend auditing procedures to actively search for evidence of fraud in all situations.
d. The auditor is responsible for the failure to detect fraud only when an unmodified opinion is rendered.
2. Which of the following forms of evidence would be the least reliable?
a. correspondence with the client’s stockbroker concerning the client’s investments held in trust by the brokerage firm
b. responses to the auditor’s questions by the president and controller regarding the Investment in Marketable Securities account
c. minutes of the board of directors’ meeting authorizing the purchase of marketable securities to be held for the next two years
d. the auditor’s count of marketable securities
3. An auditor determines that her client has an excellent system of internal controls. Which of the following audit procedures is she least likely to perform?
a. obtain a client representation letter
b. doa physical inspection of a sample of inventory
c. confirm balances in the accounts receivable sub-ledger
d. search for unrecorded cash receipts
4. If invalid sales are included in a client’s accounting records, there will be an
a. understatement of assets and an overstatement of net income.
b. overstatement of assets and an understatement of net income.
c. overstatement of assets and net income.
d. understatement of assets and net income.
5. The auditor may issue an unmodified report if
a. the client’s financial statements show significant net losses for the current fiscal year and for the two prior years.
b. the financial statements were not prepared in accordance with GAAP.
c. the scope of the auditor’s examination was restricted and the cause of the restriction was beyond the client’s control.
d. the auditor was not independent during the fiscal period under audit.
6. Inventory accounts for approximately 80% of MM Company’s assets. The auditor has determined that the inventory is materially misstated. The auditor should issue a(n)
a. adverse opinion.
b. unmodified opinion.
c. disclaimer of opinion.
d. qualified opinion.
7. When a client has failed to follow GAAP, materiality is usually evaluated in terms of
a. whether or not the error(s) will affect future fiscal periods.
b .the measurability of the dollar error.
c. the total dollar value of the error(s) in the accounts involved, compared with a predetermined base.
d. the nature of the account(s) in error.
8. When a client fails to make adequate disclosure in the body of the financial statements or the notes to the financial statements, it is the auditor’s responsibility to
a. inform the reader that disclosure is not adequate. The auditor should add the necessary disclosure to the notes to the financial statements and issue either an unmodified or qualified opinion.
b. present the information in the audit report and issue a qualified or an adverse opinion.
c. inform the reader that disclosure is not adequate. The auditor should add the necessary disclosure to the notes to the financial statements and issue either a qualified or an adverse opinion.
d. present the information in the audit report and issue an unmodified or a qualified opinion.
9. During the audit of WW Ltd., the auditor, CJ, uncovers circumstances that lead him to suspect that there may be management fraud. He should
a. evaluate the implications of the circumstances and consider modifying his audit procedures and evidence-collecting techniques.
b. issue an adverse opinion.
c. withdraw from the engagement.
d. issue a disclaimer of opinion.
10. For financial reporting purposes, a client changes from the straight-line method of amortization to the declining-balance method of amortization. This is reported in the notes to the financial statements, even though it has an immaterial effect on the current financial statements. However, this change will have a significant impact on future fiscal periods. The auditor should render a(n)
a. unmodified opinion.
b. qualified opinion.
c. adverse opinion.
d. disclaimer of opinion.
11. One of the audit procedures that an auditor carried out was to compare recorded transactions in the acquisitions journal with the suppliers’ invoices, receiving reports, and other supporting documentation. This substantive test was done to satisfy the objective of
a. authorization.
b. completeness.
c. accuracy.
d. existence.
12. A substantive test that requires the auditor to physically examine assets satisfies the audit objective of
a. existence.
b. cutoff.
c. completeness.
d. classification.
13. If his client refuses to prepare and sign a representation letter, the auditor should render a(n)
a. unmodified opinion.
b. qualified opinion or an adverse opinion.
c. qualified opinion or a disclaimer of opinion.
d. adverse opinion or a disclaimer of opinion.