Auditing and Assurance Training Trivia 4 — Questions and Answers
Question 1: Under GAAS, which standard requires the auditor to plan and supervise the audit adequately?
- General Standards
- Standards of Fieldwork (Correct answer)
- Standards of Reporting
- Quality Control Standards
Correct answer: Standards of Fieldwork
The Standards of Fieldwork include adequate planning, understanding of internal control, and sufficient appropriate audit evidence — with planning and supervision being the first fieldwork standard.
Question 2: What is a 'walkthrough' in auditing?
- A physical inspection of the client's facility
- Tracing a transaction from initiation through the financial statements to understand the flow of transactions (Correct answer)
- A review of all internal audit reports
- An unannounced visit to the client's accounting department
Correct answer: Tracing a transaction from initiation through the financial statements to understand the flow of transactions
A walkthrough traces one or a few transactions through each step of the process, helping the auditor understand and confirm the design and implementation of controls.
Question 3: Which type of confirmation asks the recipient to respond only if they disagree with the information provided?
- Positive confirmation
- Negative confirmation (Correct answer)
- Blank confirmation
- Electronic confirmation
Correct answer: Negative confirmation
Negative confirmations request a response only when the recipient disagrees with the stated information, providing less reliable evidence than positive confirmations.
Question 4: The PCAOB was established as a result of which legislation?
- Dodd-Frank Wall Street Reform Act
- Securities Exchange Act of 1934
- Sarbanes-Oxley Act of 2002 (Correct answer)
- Investment Advisers Act of 1940
Correct answer: Sarbanes-Oxley Act of 2002
The Public Company Accounting Oversight Board was created by the Sarbanes-Oxley Act of 2002 in response to major corporate accounting scandals like Enron and WorldCom.
Question 5: What is the purpose of a 'representation letter' (also called a management representation letter)?
- To obtain written confirmation of account balances from third parties
- To obtain written acknowledgment from management of its responsibilities and confirmation of representations made to the auditor (Correct answer)
- To formally notify management of audit deficiencies
- To document the auditor's understanding of the client's industry
Correct answer: To obtain written acknowledgment from management of its responsibilities and confirmation of representations made to the auditor
A management representation letter is signed by senior management and confirms key representations made during the audit, such as the completeness of information provided.
Question 6: Which internal control principle states that no single employee should have control over all phases of a transaction from beginning to end?
- Physical safeguards
- Independent verification
- Segregation of duties (Correct answer)
- Authorization controls
Correct answer: Segregation of duties
Segregation of duties divides responsibilities for authorizing, recording, and custody of assets among different employees to reduce fraud risk.
Question 7: In an attestation engagement, which party is responsible for the subject matter being attested to?
- The practitioner (CPA)
- The intended users of the report
- The responsible party (client) (Correct answer)
- The regulatory body that mandates the engagement
Correct answer: The responsible party (client)
In attestation engagements, the responsible party (the client or engaging party) owns the subject matter, while the practitioner provides assurance on it.
Auditing and Assurance Training Trivia 4
Under GAAS, which standard requires the auditor to plan and supervise the audit adequately?