Auditing and Assurance Training Fundamentals 4

Question 1

An auditor is required to communicate 'critical audit matters' (CAMs) in the audit report of a public company. What qualifies as a CAM?

Accepted Answer

Matters communicated to the audit committee that involved especially challenging or complex auditor judgment

Answer

CAMs under PCAOB AS 3101 are matters communicated to the audit committee that involved especially challenging, subjective, or complex auditor judgment.

Question 2

Which sampling approach gives every item in the population an equal and known probability of selection?

Accepted Answer

Statistical (random) sampling

Answer

Statistical sampling uses randomization to give each population item a known chance of selection, allowing the auditor to project results with measurable confidence.

Question 3

When auditing estimates such as the allowance for doubtful accounts, which auditing approach involves the auditor independently developing their own estimate to compare with management's?

Accepted Answer

Developing an independent expectation

Answer

Developing an independent expectation involves the auditor using their own data and assumptions to create an estimate and comparing it to management's recorded amount.

Question 4

What is the key distinction between a 'significant deficiency' and a 'material weakness' in internal controls?

Accepted Answer

A material weakness has a reasonable possibility of causing a material misstatement; a significant deficiency is less severe

Answer

A material weakness has a reasonable possibility of resulting in a material misstatement, whereas a significant deficiency is less severe but still warrants attention by management.

Question 5

During fieldwork, the auditor discovers that a key control was not operating effectively for three months of the fiscal year. This is most likely evidence of:

Accepted Answer

A control deficiency that may affect the reliability of related account balances

Answer

An ineffective control for part of the year is a control deficiency that requires the auditor to expand substantive testing for the period the control failed.

Auditing and Assurance Training Practice Test

Auditing and Assurance Training Practice Test

Auditing and Assurance Training Fundamentals 4