1. Which of the following would an auditor most likely use in making preliminary judgments about materiality?
a. The anticipated sample size of the planned substantive tests.
b. The entity's unaudited annual financial statements.
c. The results of the internal control questionnaire.
d. The contents of the management representation letter.
2. Which of the following matters is an auditor required to communicate to an entity's audit committee?
a. Adjustments that were suggested by the auditor and recorded by management that have a significant effect on the entity's financial reporting process.
b. The auditor's level of detection risk for the audit engagement.
c. The results of the auditor's analytical procedures performed in the review stage of the engagement that indicate significant variances from expected amounts.
d. Changes in the auditor's preliminary judgment about materiality that were caused by projecting the results of statistical sampling for tests of transactions?
3. Decisions about materiality are
a. A matter of professional judgment.
b. Dependent on the needs of a reasonable person.
c. Involve both quantitative and qualitative considerations.
d. All of the above.
4. Which of the following best describes a Level 3 fair value estimate? An estimate based on
a. The value of similar assets traded on a foreign exchange.
b. The value of the same asset, but traded on a foreign exchange.
c. The value is not readily observable in any marketplace and thus requires an estimate using a model.
d. The value is not readily observable, but there are market trades of similar assets that can serve as a surrogate for value of the asset in question?
5. A summary of unadjusted audit differences:
a. Is a summary of corrected errors.
b. Should be communicated to the audit committee.
c. Should be communicated in a management letter.
d. Should be evaluated by the audit committee as to whether an adjustment is required?
6. Which of the following statements are correct regarding material weaknesses in internal control?
I. The severity of a control deficiency is based on the amount of misstatement in a financial statement that an informed user would consider to be material.
II. The discovery of a material misstatement in the financial statements is prima facie evidence that the company had a material weakness in internal control over financial reporting.
III. A computer program error that could have led to a material misstatement was discovered by management and remediated several months before year end, so it does not constitute a material weakness.
a. I only
b. I and II only
c. I, II, and III
d. II only
7. When assessing an internal auditor's competence, an external auditor would typically obtain information about all of the following except:
a. Quality of work as evidenced in the internal auditor's working paper documentation
b. Educational level and professional experience
c. Professional certifications
d. References from auditees?
8. Which of the following should the external auditor do when assessing an internal auditor's objectivity?
a. Evaluate whether the internal auditor's audit programs are consistent with management requests.
b. Inquire about the internal auditor's educational background.
c. Consider the organizational level to which the internal auditor reports.
d. Review the internal auditor's resume?
9. In assessing the competence and objectivity of an entity's internal auditor, which of the following would an external auditor be least concerned with?
a. The extent to which the internal audit function complied with professional internal auditing standards.
b. External quality reviews of the internal auditor's activities.
c. Previous experience with the internal auditor.
d. The extent to which the internal audit programs are approved by the external audit function?