55 free test bank for auditing 1st

55 Free Test Bank for Auditing 1st Edition by Moroney
Multiple Choice Questions
The cause of information risk does not include:
1.

a) independence

2.

b) complexity

3.

c) reliability

4.

d) competing incentives

Based on the evidence gathered, if an auditor concludes all noted
misstatements in the financial statements to be immaterial,
individually and collectively, then the auditor would:
1.

a) resign from the engagement

2.

b) emphasize the errors in the audit report

3.

c) issue an unqualified opinion

4.

d) issue a qualified opinion

Under the Canada Business Corporations Act, the auditor has a
responsibility to form an opinion on the Company’s:
1.

a) operations

2.

b) independence

3.

c) financial statements

4.

d) none of the above

An audit report is generally addressed to the:
1.

a) shareholders

2.

b) management

3.

c) company

4.

d) none of the above


Which of the following groups would be considered users of the
financial statements?
1.

a) suppliers

2.

b) customers

3.

c) employees

4.

d) all of the above

Demand for audit of financial statements is driven by demand for
reliable, high-quality information – this is an example of:
1.

a) agency theory

2.

b) information hypothesis

3.

c) insurance hypothesis

4.

d) competing incentives

The insurance hypothesis implies that:
1.

a) a company must have business interruption insurance in order to be
audited

2.

b) an audit acts as insurance for the users of financial statements

3.

c) insurance companies are not required to be audited

4.

d) none of the above

A listed entity is required to be audited by a member in good
standing with:
1.

a) CPAB

2.

b) CSA

3.

c) CICA

4.

d) OSFI


Financial statements should allow for users to identify trends in a
company’s performance. This implies financial statements to be:
1.

a) relevant

2.

b) reliable

3.

c) comparable

4.

d) understandable

All of the following comprise differences between an audit and a
review, except:
1.

a) a review may be less expensive than the cost of an audit

2.

b) the scope of a review will be smaller than the scope of an audit

3.

c) a review will provide lower assurance than an audit

4.

d) for a review, the practitioner doesn’t have to be independent, but for an
audit, one does

A tax audit is an example of:
1.

a) operational audit

2.

b) compliance audit

3.

c) internal audit

4.

d) comprehensive audit

For a financial report to be reliable, it must:
1.
2.

a) be free from material misstatement
b) have an impact on the decisions made by users regarding the performance
of the entity

3.

c) be periodically audited by an independent auditor

4.

d) none of the above

Professional scepticism requires auditors to possess a mind that is:


1.

a) thoughtful

2.

b) questioning

3.

c) reflective

4.

d) unbelieving

For a financial statement audit, the accountable party is the:
1.

a) management

2.

b) shareholders

3.

c) company

4.

d) auditors

In general, the users prefer an audit report with a(n):
1.

a) unqualified opinion

2.

b) clean opinion

3.

c) unmodified

4.

d) all of the above

If ABC Inc. engaged a national accounting firm to audit the financial

statements of XYZ Inc. and deliver the audit report to ABC’s bank,
then the client is:
1.

a) ABC Inc.

2.

b) national accounting firm

3.

c) XYZ Inc.

4.

d) ABC’s bank

An engagement to report if anything came to attention which would
lead to the belief that the information is not fairly presented is
known as a(n):
1.

a) compilation engagement


2.

b) review engagement

3.

c) consultancy engagement

4.

d) audit engagement

Financial statements are not required to be in accordance with
GAAP for:
1.

a) an audit engagement

2.

b) a review engagement

3.

c) a compilation engagement

4.

d) none of the above

When an auditor is not able to obtain sufficient appropriate audit
evidence on which to base an opinion and concludes the effects to
be material and pervasive, then the report is issued with a(n):
1.

a) unqualified opinion

2.

b) adverse opinion

3.

c) qualified opinion

4.

d) none of the above

An audit provides:
1.

a) moderate assurance

2.

b) negative assurance

3.

c) absolute assurance

4.

d) reasonable assurance

Comprehensive audits encompass elements of a:
1.

a) compliance audit

2.

b) operational audit

3.

c) financial statement audit


4.

d) all of the above

55 Free Test Bank for Auditing 1st Canadian Edition by
Moroney Multiple Choice Questions - Page 2
The largest accounting firms in Canada are known collectively as
the
1.

a. ‘Big-3’

2.

b. ‘Big-4’

3.

c. ‘Big-5’

4.

d. ‘Big-6’

Mary Logan was careful to undertake her audits in a most
responsible manner. Her audit manager complimented her on her
diligence and how well she documented her work at the different
stages of the audit process. Which element of responsibility did she
display?
1.

a. due care

2.

b. professional judgment

3.

c. professional scepticism

4.

d. none of these

A limitation of an audit is caused by:
1.

a. the nature of financial reporting

2.

b. the nature of audit procedures

3.

4.

c. the need for the audit to be conducted within a reasonable period of time
and at a reasonable cost
d. all of the above.

Vera Sobczyk spent a week at a client’s wholesale operation
determining whether the client’s remittances to the tax authorities
were in accordance with tax regulations. This is an example of a(n)


1.

a. taxes payable mandate

2.

b. financial audit

3.

c. operational audit

4.

d. none of these

The primary responsibility for fraud prevention and detection
remains with:
1.

a) management

2.

b) shareholders

3.

c) auditors

4.

d) none of the above

A financial statement auditor is required to audit all of the following,
except:
1.

a) income statement and balance sheet

2.

b) statement of cash flows

3.

c) management discussion and analysis

4.

d) notes to the financial statements

Maggie Oh performed an audit of a client that had undergone
flooding to its operations in St-Jean Sur Richelieu. The client was
insured and was able to keep operating. However, there was
material damage to the client’s warehouse and Maggie felt it would
be appropriate to inform the users of the financial statements of this
fact in the audit report. This form of audit report is called:
1.

a. an adverse opinion

2.

b. unmodified opinion – emphasis of matter

3.

c. modified opinion

4.

d. disclaimer of opinion


The top tier of accounting firms is comprised of:
1.

a) Deloitte, Ernst & Young, PricewaterhouseCoopers (PwC) and KPMG

2.

b) Ernst & Young, PricewaterhouseCoopers (PwC), KPMG and BDO

3.

c) Deloitte, Ernst & Young, KPMG and Grant Thornton

4.

d) WHK Group, Deloitte, KPMG and PricewaterhouseCoopers (PwC)

Matt Fuller reports to the board and evaluates how the company
can improve risk management practices, internal control
procedures, and certain governance issues. Who is he?
1.

a. President

2.

b. Controller

3.

c. Treasurer

4.

d. Internal Auditor

The wording of a negative expression of opinion generally states
that:
1.

a. there is nothing wrong with the subject matter.

2.

b. there is something wrong with the subject matter.

3.

c. there is nothing that has come to the attention of the auditors that would
lead them to believe that the information being assured is not true and fair.

4.

d. there is something that has come to the attention of the auditors that would
lead them to believe that the information being assured is not true and fair.

Which of the following is not true in relation to comparability:
1.

a. able to identify trends, that may influence their perception of how well the
entity is doing.

2.

b. able to assess performance of the entity over time and with other entities

3.

c. able to evaluate

4.

d. all of the above are correct.


James Brown, the senior auditor at Yanzhou Coal Mining and
Minerals, performed the following tasks: he used analytical
procedures and he had discussions with management. These
activities were a basis for a negative form of opinion. What did
James Brown perform?
1.

a. a qualified report

2.

b. an unmodified opinion

3.

c. a compilation

4.

d. a review engagement

Matt Stairs performed work for a client in the real estate business
and issued a Notice to Reader. What degree of assurance does a
Notice to Reader provide to the user of the statements?
1.

a. reasonable assurance

2.

b. moderate assurance

3.

c. no assurance

4.

d. none of the above

The expectation gap is caused by:
1.

a. realistic auditor expectations

2.

b. unrealistic user expectations

3.

c. realistic user expectations

4.

d. unrealistic auditor expectations

An example of the three parties in an assurance engagement would
be:
1.

a. audit client, employee, customer

2.

b. audit client, supplier, auditor

3.

c. auditor, shareholder, general public


4.

d. auditor, general public, employees.

Theodore Heinrich prepared a set of financial statements based on
information provided to him. He checked mathematical accuracy of
the data, and the client complimented him on the reasonable cost of
the work he performed. Theodore performed
1.

a. a compilation

2.

b. a review

3.

c. an audit

4.

d. none of the above

Mary Moras was reviewing the previous year’s audited financial

statements of a clothing manufacturer. Her manager explained to
her that for a financial statement audit, the clothing company was
the accountable party, its shareholders were the users, and the
subject matter was the financial statements. What kind of audit
engagement was her manager describing?
1.

a. consulting engagement

2.

b. assurance engagement

3.

c. review engagement

4.

d. compliance engagement

As users of the financial statements, suppliers would least consider
which of the following aspects of the financial statements:
1.

a. solvency of the entity

2.

b. profitability of the entity

3.

c. return on investment of the entity

4.

d. corporate social responsibility of the entity

An example of an unmodified audit opinion is:
1.

a. qualified audit opinion


2.

b. adverse audit opinion

3.

c. unqualified audit opinion with an emphasis of matter.

4.

d. none of the above.

Larry Dibitonto is a partner in his firm and runs management
consulting, mergers and acquisitions, insolvency, tax, and
accounting services. How are these services referred to

collectively?
1.

a. audit

2.

b. non-assurance services

3.

c. reviews

4.

d. none of the above

The following can be said about an emphasis of matter:
1.

2.

a. it is included when the auditor’s opinion has changed and the auditor wants
to bring the users’ attention to a particular matter.
b. it is only used in unqualified audit opinions.

3.

c. it is included when the auditor’s opinion has not changed and the auditor
wants to bring the users’ attention to a particular matter.

4.

d. it can not be used when expressing audit opinion that has pervasive
misstatements.

In addition to the preparation of financial statements, it is also the
responsibility of those charged with governance to:
1.

a. identify the financial reporting framework to be used in the preparation and
presentation of their financial statements.

2.

b. establish and maintain internal controls that are effective in preventing and
detecting material misstatements

3.

c. selecting and applying appropriate accounting policies and making
reasonable accounting estimates

4.

d. all of the above.


In a review engagement, which of the following is least likely to
occur during the engagement?

1.

a. analytical procedures

2.

b. enquiries with management and other personnel

3.

c. substantive audit procedures

4.

d. review of the internal controls of the entity.

The expectation gap can be reduced by:
1.

a. auditors performing their duties properly

2.

b. enhanced reporting to explain what processes have been followed in
arriving at an audit or a review opinion

3.

c. assurance providers reporting accurately the level of assurance being
provided

4.

d. all of the above.

Professional scepticism does not involve:
1.

a. the professional requirement that all management representations be
substantiated with supporting documentation.

2.

b. seeking independent evidence to corroborate information provided by their
client

3.

c. being suspicious when evidence contradicts documents held by their client
or enquiries made of client personnel

4.

d. none of the above.

Which of the following is NOT true about Corporate Social
Responsibility assurance?
1.

a. reporting is voluntary and is becoming more widespread.

2.

b. includes both financial and non-financial information.

3.

c. is required to be performed by an auditor.

4.

d. disclosures include environmental, employee and social reporting.


Insurance hypothesis tells us that:
1.

a. investors will demand that financial statements be audited as a way of
insuring against some of their loss should their investment fail.

2.

b. investors can insure themselves against loss by investing in a diverse
investment portfolio should an individual investment fail.

3.
4.

c. investors cannot insure themselves against loss when investing in an entity.
d. the entity can take out insurance to protect itself from such risks as

employee or management fraud which can lead to material misstatements in
the financial statements.

While awaiting a meeting in his firm’s boardroom, the senior
partner, Bill Goldsworthy, read the following statement in an article
in the Globe & Mail: “The greater the perceived quality of the
information contained in the financial statements, the more likely it
will be relied upon by the users of that information.” This statement
best describes
1.

a. the expectations gap

2.

b. agency theory

3.

c. information hypothesis

4.

d. insurance hypothesis

Which of the following is not a type of opinion?
1.

a. qualified opinion

2.

b. modified opinion

3.

c. adverse opinion

4.

d. disclaimer of opinion

Ming Yao reviewed the operations of a basketball academy. His
objectives were to determine how effectively the academy delivered
its many programs. What kind of an audit did he perform?
1.

a. operational


2.

b. compliance

3.

c. financial

4.

d. comprehensive

Agency theory can be described as the theory of:
1.

a. hiring an agency to review the work of the management, in this case it is
the auditor.

2.

b. when the finance function is outsourced to an outside party, and the auditor
is required to audit the outside party’s work.

3.

c. the relationship between the owner and the management of the business
when the owner is not the manager of the business.

4.

d. none of the above.

Which of the following is incorrect? A government can be
considered to be a user of the general purpose financial statements
because:
1.

a. it is the basis for the calculation of taxes owed to the government

2.

b. it can determine whether certain regulations have been complied with

3.

c. to gain a better understanding of the entity’s activities

4.

d. governments need to assess the entity so that they can provide the entity
with grants that will benefit society.

For a financial report to be relevant, it must:
1.
2.

a) be free from material misstatement
b) have an impact on the decisions made by users regarding the performance
of the entity

3.

c) be periodically audited by an independent auditor

4.

d) none of the above

Which of the following would be an example of a reasonable
assurance engagement?

1.

a. the review of annual financial statements.

2.

b. the audit of annual financial statements.

3.

4.

c. the reporting of procedures performed by the auditor as agreed by the
client.
d. all of the above.