1. The GAAS examination standards relating to the audit of financial statements, mandates each of the following requirements, except for
   1. Plan and perform an audit to reduce audit risk to an acceptably low level.
   2. Obtain reasonable assurance that the financial statements, taken as whole, are free of all misstatements.
   3. Conduct an audit that is in accordance with CASs.
   4. Obtain a conclusive amount of audit evidence to support your audit opinion.
2. An external auditor is conducting an audit of the financial statements of Camden Corporation. The external auditor is expected to ________.
   1. certify the correctness of Camden's financial statements
   2. make a 100% examination of Camden's records
   3. give an opinion on whether Camden's financial statements are fairly presented in all material respects
   4. give an opinion on the attractiveness of Camden for investment purposes and critique the wisdom and legality of its business decisions
3. An audit report included an additional paragraph disclosing a difference of opinion between the auditor and the client. The auditor believed that an adjustment should be made to the financial statements. What should the opinion paragraph of the audit report express?
   1. An unqualified opinion.
   2. An "except for" opinion citing a departure from generally accepted accounting principles.
   3. An "except for" opinion citing a scope limitation.
   4. A disclaimer of opinion.
4. Upon completing the audit of ABC Company Ltd., the auditor has concluded that the financial statements are fairly presented and there is material uncertainty as to the ability of the company to continue as a going concern. Consequently, what type of audit opinion should be issued?
   1. An adverse audit opinion.
   2. An unqualified opinion report with an emphasis of matter paragraph added.
   3. A qualified opinion due to GAAP departure.
   4. A standard unmodified audit report with the inclusion of the going concern issue as a key audit matter.

5. Which level of assurance results in a public accountant (PA) expressing a conclusion in the negative form "nothing has come to my attention"?

1. Audit.
2. Review.
3. Examination.
4. Compilation.

6. The concept of materiality refers to ________.

1. any misstatement in the financial statements
2. the overall degree of risk in an organization
3. an amount of misstatement that could affect the decisions of a financial statement user.
4. an amount of risk in an organization sufficient to offset the expected returns of any investment in the company

7. The risk that an auditor's procedures will lead to the conclusion that a material misstatement does not exist in an account balance when, in fact, such misstatement actually does exist is ________.

1. audit risk
2. inherent risk
3. control risk
4. detection risk 8. To ensure that a high level of assurance is provided by the audit opinion, what must the auditor do?

• 1. Plan and execute the audit to ensure an acceptably low risk of material misstatement is achieved.
• 2. Plan and execute the audit to ensure an acceptably low level of audit risk is achieved.
• 3. Plan and execute the audit to ensure an acceptably low level of inherent risk is achieved.
• 4. Plan and execute the audit to ensure an acceptably low level of detection risk is achieved.

9. Two broad groupings of controls are ________.

1. internal controls and segregation of duties
2. physical access controls and password controls
3. validity checks and completeness checks
4. general controls and application controls

10. An audit client's decision to outsource its data processing function to an external service provider, would be of significant interest to the auditor, mostly because:

1. It would impact on the auditor's assessment of management integrity.
2. It would impact on the design and effectiveness of the client's internal control system, which would in turn affect the assessed risk of material misstatement.
3. It would result in a major increase to the audit fee.
4. It results in a shift in responsibilities away from the auditee's management to that of the service provider.

11. Which of the following is not a characteristic of fraud?

1. Intent to deceive.
2. Misrepresentation or intentional omission of significant information.
3. Taking unfair or dishonest advantage of others for personal gain.
4. Negligence on the part of executive management.

12. Unintentional misstatements or omissions of amounts or disclosures in financial statements are known as ________.

1. errors
2. irregularities
3. fraud
4. embezzlement

13. Which of the following is not normally considered an accounting estimate?

1. Salvage value of a capital asset.
2. Net realizable value of slow-moving inventory.
3. Fair value of actively traded shares.
4. Allowance for uncollectible receivables. 14. To whom should immaterial errors be reported?
   1. No one.
   2. The audit committee.
   3. Senior management.
   4. The manager at least one level above the people involved.

15. An auditor who discovers that client employees have committed an illegal act with material consequences on the financial statements is most likely to seek legal advice and consider withdrawing from the engagement if ________.

1. the illegal act is a violation of generally accepted accounting principles
2. the client does not take appropriate action after being informed about the illegal act
3. the illegal act was committed during a prior year that was not audited
4. the auditor has already assessed control risk at the maximum level

16. The primary responsibility for the prevention and detection of fraud rests with ________.

1. external auditors
2. internal auditors
3. management
4. the Audit Committee

17. In the audit of ABC Company, where materiality was assessed as $15,000, three misstatements were detected: an improper asset capitalization of $18,000, an employee theft of $5,000 and a $5 posting error. In accordance with CAS 260, the auditor must report which of these misstatements to the audit committee?

1. Only the $18,000 misstatement.
2. Both the $18,000 and $5,000 misstatement, but not the $5 error.
3. All three misstatements must be reported.
4. None of the misstatements need be reported to the audit committee, just to an appropriate level of management.

18. To provide efficient, reliable evidence, confirmations should be ________.

1. created by the client and sent to third parties to be returned to the client
2. created by the auditor and sent to third parties to be returned to the client
3. created by the auditor and sent to third parties to be returned to the auditor
4. created by the client and sent to third parties to be returned to the auditor

19. The two primary forms of audit evidence used during the risk assessment phase are:

1. Inquiry and analysis
2. Inspection and observation
3. Confirmation and analysis
4. Inquiry and recalculation/reperformance

20. The audit procedure "vouch a sample of capital asset additions to supporting vendor invoices" is an example of what audit technique?

1. Analysis
2. Inspection
3. Confirmation
4. Observation

NB AUDITING