CPA CFE Audit and Assurance 2

Question 1

What is the difference between substantive procedures and tests of controls in an audit?

Accepted Answer

Substantive procedures test the amounts and disclosures in financial statements; tests of controls evaluate the operating effectiveness of internal controls

Answer

There is no difference; they are the same type of procedure

Answer

Tests of controls are performed only at year-end; substantive procedures are performed at interim

Answer

Substantive procedures are optional; tests of controls are mandatory

Question 2

Under CAS 240, what is the auditor's responsibility regarding fraud in an audit of financial statements?

Accepted Answer

To obtain reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error, maintaining professional skepticism throughout

Answer

To detect all fraud regardless of materiality

Answer

To prevent all future fraud from occurring

Answer

To report all suspected fraud directly to law enforcement

Question 3

What is the purpose of an audit engagement letter?

Accepted Answer

To document the agreed terms of the engagement, including the objective, scope, responsibilities, and limitations of the audit

Answer

To serve as the final audit report

Answer

To provide the auditor's preliminary opinion on the financial statements

Answer

To list all audit procedures the auditor will perform

Question 4

Under CAS, what is the meaning of 'sufficient appropriate audit evidence'?

Accepted Answer

Evidence that is adequate in quantity (sufficient) and quality (appropriate: relevant and reliable) to support the auditor's conclusions

Answer

All evidence available to the auditor

Answer

Only documentary evidence obtained from external parties

Answer

Evidence based solely on management representations

Question 5

Which of the following is an example of an analytical procedure used as a substantive test?

Accepted Answer

Comparing the current year's gross margin percentage to prior years and industry data to identify unusual fluctuations

Answer

Confirming accounts receivable balances with customers

Answer

Physically counting inventory on hand

Answer

Inspecting board minutes for approval of major transactions

Question 6

What is the auditor's responsibility when a subsequent event occurs between the date of the financial statements and the date of the auditor's report?

Accepted Answer

The auditor must perform procedures to identify events requiring adjustment or disclosure in the financial statements

Answer

The auditor has no responsibility for events after the financial statement date

Answer

The auditor should automatically reissue the financial statements

Answer

The auditor should only consider events occurring after the report date