1- Once fraud is detected, the auditor should first

discuss it with the audit committee.

discuss it with shareholders.

publicly discuss it at the annual general meeting.

seek legal advice to determine reporting requirements.

2- During the risk assessment phase, the auditor makes a judgement

on fraudulent activities and errors in the financial statements.

on the industry in which the client operates.

on staff required to audit the client.

on fraudulent activities at the client.

3- To validate information obtained from the client, the auditor must obtain

convincing evidence.

corroborative evidence.

collateral evidence.

collaborative evidence.

4- The responsibilities of overseeing the risk, internal controls, and management information systems are that of

management.

the CEO.

the board of directors.

the auditor.

5- Information technology (IT) should be considered by the auditor

when gaining an understanding of a clients internal controls.

at every stage of the audit.

when developing the audit strategy.

when executing the audit.

6- Fraud should always be reported to

the audit committee.

management.

legal counsel.

shareholders.

7- The most significant risks auditors face when management is rewarded on the basis of financial performance is

poor internal controls and inadequate closing procedures.

inadequate closing procedures and smoothing of income.

management override and inadequate closing procedures.

inadequate closing procedures, overstatement of income, and understatement of expenses.

8- If there is an unresolved going concern issue, the auditor will

evaluate the disclosure in the financial statements.

evaluate the financial statements for fraud.

evaluate the financial statements for material misstatement.

evaluate the financial statements for errors.

9-The responsibility to prepare a list of related parties and transactions is that of the

client management.

auditor.

board of directors and client management.

auditor and client management.

10- A comparison of account balances over time is called a

vertical analysis.

simple comparison.

horizontal analysis.

ratio analysis.

11- The risk of material misstatement is

inherent risk * detection risk.

inherent risk * control risk.

control risk * detection risk.

audit risk * inherent risk.

12- Which of the following would NOT typically be an appropriate base on which an auditor would determine materiality?

total liabilities

net income before tax

gross profit

total assets

13- An entity has a bank loan with a debt covenant stating that the current asset ratio must be more than 1.5:1. This circumstance will directly impact

overall materiality.

the basis for determining materiality.

performance materiality.

specific materiality.

14- Which of the following is true when the auditor determines the client has a low risk of material misstatement?

increased reliance on substantive tests of transactions and account balances

inherent risk is assessed as high

detection risk is assessed as low

increased reliance on testing of controls

15- Which of the following is NOT a reason that auditors conduct analytical procedures at the risk assessment phase of the audit?

identify accounts at risk of material misstatement

highlight unusual fluctuations in accounts

assist with the identification of risk

assess if the financial statements reflect the auditors knowledge of their client

16- The risk that an auditor issues a clean opinion when the financial statements are materially misstated is called

control risk.

detection risk.

audit risk.

inherent risk.

17- Which of the following is a reason companies need cash in the long term?

to pay suppliers

to undertake capital investments

to pay salaries

to pay interest payments

18- What is the purpose of setting an overall audit strategy?

set the scope, timing, and direction of the audit

determine the effectiveness of the controls

determine amount of materiality

assist in inherent and control risk assessment

19- In a common-size analysis, the auditor compares account balances with a single line item. In a balance sheet, this line item is generally

current assets.

total liabilities.

total assets.

total equity.