Fund Auditing Midterm Test 1
Fund Auditing Midterm Test 1
Fund Auditing Midterm Test 1
No 1. Multiple choices
1. The CPA firm will lose its independence if
A) a staff auditor providing audit services to the client acquires stock in that
client.
B) a staff tax preparer who provides 15 hours of non-audit services to the
client acquires stock in that client.
C) an audit manager in an office different than the office providing audit
services has a direct, immaterial financial interest in the audit client.
D) a covered member has an indirect, immaterial financial interest in an audit
client.
2. When the auditor uses tracing as an audit procedure for tests of transactions, she
is primarily concerned with which audit objective?
A) occurrence
B) completeness
C) cutoff
D) classification
3. The evaluations of financial information through analysis of plausible
relationships among financial and nonfinancial data is the definition of
A) analytical procedures.
B) tests of transactions.
C) tests of balances.
D) auditing.
4. Evidence is generally considered appropriate when
A) it has been obtained by random selection.
B) there is enough of it to afford a reasonable basis for an
opinion on financial statements.
C) it is relevant to the audit objective being tested.
D) it consists of written statements made by managers of the
company under audit.
A) quantity of evidence.
B) quality of evidence.
C) sufficiency of evidence.
D) meaning of evidence.
No2. Determine whether each of the following statements is true or false and
provide a brief explanation?
1. Assessing acceptable audit risk, client business risk, and risk of material
misstatement helps determine the audit procedures that will be needed.
2. As acceptable audit risk is decreased, the likely cost of conducting an audit
increases.
3. When a successor auditor contacts a company's previous auditor, the predecessor
auditor is required to respond fully and without limit to the request for information.
4. Many risks are common to all clients in certain industries.
5. Transactions with related parties must be disclosed in the financial statements if
they are deemed to be material.
6. Management's philosophy and operating style influence the risk of material
misstatements in the financial statements.
7. In order to be meaningful, a company's ratios should be compared to their prior
year's ratios, not industry benchmarks.
8. A high detection risk equates to a low amount of audit evidence needed.
No 3. Tracy Keulen, the sole owner of a small bakery, has been told that the business
should have financial statements reported on by an independent Registeraccountant
(RA). Keulen, having some bookkeeping experience, has personally prepared the
company’s financial statements and does not understand why such state- ments
should be examined by an RA. Keulen discussed the matter with petra Dassen, an
RA, and asked Dassen to explain why an audit is considered important.
Required: