Auditing and Assurance Training Auditing and Assurance Training MCQ 5 — Questions and Answers
Question 1: Which element of the fraud triangle refers to the perceived opportunity to commit fraud without detection?
- Pressure
- Rationalization
- Opportunity (Correct answer)
- Motivation
Correct answer: Opportunity
The fraud triangle consists of pressure, rationalization, and opportunity—opportunity refers to the perceived chance to commit and conceal fraud.
Question 2: What is 'audit documentation' (working papers) primarily used for?
- To prepare the client's financial statements
- To record audit evidence supporting the auditor's conclusions and opinion (Correct answer)
- To replace the management representation letter
- To communicate audit results to shareholders directly
Correct answer: To record audit evidence supporting the auditor's conclusions and opinion
Audit documentation provides the principal record of the basis for the auditor's conclusions and evidence that the audit was conducted in accordance with standards.
Question 3: Under PCAOB standards, how long must audit firms retain audit documentation for public company audits?
- 3 years
- 5 years
- 7 years (Correct answer)
- 10 years
Correct answer: 7 years
PCAOB standards require audit firms to retain audit documentation for public companies for a minimum of 7 years.
Question 4: Which of the following best describes 'cut-off' as an audit assertion?
- All assets are recorded at their correct fair values
- Transactions are recorded in the correct accounting period (Correct answer)
- The entity has legal rights to all recorded assets
- All transactions have been recorded and none are omitted
Correct answer: Transactions are recorded in the correct accounting period
The cut-off assertion ensures that transactions are recorded in the period in which they occurred, not in a prior or subsequent period.
Question 5: When assessing the design of an internal control, an auditor is evaluating whether the control:
- Has been consistently applied by all employees
- Is capable of preventing or detecting material misstatements if it operates as intended (Correct answer)
- Has been in place for more than one year
- Was approved by external auditors in a prior period
Correct answer: Is capable of preventing or detecting material misstatements if it operates as intended
Evaluating design involves determining whether a control, if it operates as intended, would effectively prevent or detect and correct material misstatements.
Question 6: Which of the following is an example of an assurance engagement that is NOT an audit of historical financial statements?
- An annual statutory audit of a corporation
- A review of quarterly financial statements
- An attestation on management's description of internal controls over financial reporting (SOC 1) (Correct answer)
- An audit of prior-year comparative financial statements
Correct answer: An attestation on management's description of internal controls over financial reporting (SOC 1)
A SOC 1 report is an assurance engagement on internal controls over financial reporting, not an audit of historical financial statements.
Question 7: In auditing revenue, which assertion is most at risk when a company is suspected of recording fictitious sales?
- Classification
- Completeness
- Occurrence (Correct answer)
- Valuation
Correct answer: Occurrence
The occurrence assertion (that transactions actually took place) is directly threatened when fictitious sales are recorded.
Auditing and Assurance Training Auditing and Assurance Training MCQ 5
Which element of the fraud triangle refers to the perceived opportunity to commit fraud without detection?