Auditing and Assurance Training Trivia 5

Question 1

What does 'audit risk' represent?

Accepted Answer

The risk that the auditor expresses an inappropriate opinion when the financial statements are materially misstated

Answer

Audit risk is the risk that the auditor issues a clean opinion on financial statements that are materially misstated, and it is the product of inherent risk, control risk, and detection risk.

Question 2

Which financial statement assertion is most directly tested when an auditor observes the client's physical inventory count?

Accepted Answer

Existence

Answer

Observation of the inventory count primarily tests the existence assertion — verifying that the inventory recorded in the books actually exists at that location.

Question 3

A 'significant deficiency' in internal controls is best described as:

Accepted Answer

A deficiency less severe than a material weakness but important enough to merit attention by those charged with governance

Answer

A significant deficiency is less severe than a material weakness but still warrants communication to the audit committee or those charged with governance.

Question 4

Which professional standard governs the auditor's responsibilities relating to other information included in documents containing audited financial statements?

Accepted Answer

AU-C Section 720

Answer

AU-C Section 720 addresses the auditor's responsibilities for other information (such as an annual report narrative) included alongside audited financial statements.

Question 5

What is 'kiting' in the context of bank fraud?

Accepted Answer

Exploiting the float between deposits and withdrawals at different banks to conceal a cash shortage

Answer

Kiting manipulates bank float by depositing a check from Bank A into Bank B before the Bank A check clears, artificially inflating cash balances.

Auditing and Assurance Training Practice Test

Auditing and Assurance Training Practice Test

Auditing and Assurance Training Trivia 5