CA Auditing Principles & Procedures 3

Question 1

Under the AICPA standards, what is the primary purpose of an engagement quality review?

Accepted Answer

To provide an objective evaluation of significant judgments made by the engagement team

Answer

An engagement quality review provides an objective evaluation of the significant judgments and conclusions reached by the engagement team before the report is issued.

Question 2

Which type of audit opinion is issued when financial statements are fairly presented except for a specific material matter?

Accepted Answer

Qualified opinion

Answer

A qualified opinion uses 'except for' language to indicate the financial statements are fairly presented except for the specified matter.

Question 3

The risk that an auditor's procedures will not detect a material misstatement that exists is called:

Accepted Answer

Detection risk

Answer

Detection risk is the risk that audit procedures will fail to detect a material misstatement that actually exists in the financial statements.

Question 4

When assessing going concern, which condition would most likely raise substantial doubt about an entity's ability to continue as a going concern?

Accepted Answer

Recurring operating losses and negative cash flows from operations

Answer

Recurring operating losses combined with negative operating cash flows are classic indicators of going concern doubt as they suggest the business cannot sustain itself.

Question 5

In a test of controls, the auditor finds that 3 out of 60 sampled items deviate from the prescribed control. The tolerable deviation rate is 5%. The auditor should:

Accepted Answer

Assess whether the actual deviation rate exceeds the tolerable rate

Answer

The auditor must evaluate the sample deviation rate (5%) against the tolerable rate and consider whether the control can be relied upon.

(CA) Chartered Certified Accountant Practice Test

(CA) Chartered Certified Accountant Practice Test

CA Auditing Principles & Procedures 3