CPA CFE Audit and Assurance 3

Question 1

Under the independence requirements of Canadian auditing standards and the CPA Code of Professional Conduct, which of the following would impair auditor independence?

Accepted Answer

An audit partner holding direct financial interest in the audit client

Answer

Direct financial interests (owning shares) in an audit client by the audit partner or members of the engagement team create a self-interest threat that cannot be reduced to an acceptable level. This is a clear prohibition under independence rules.

Question 2

What is the purpose of audit documentation (working papers)?

Accepted Answer

To provide a record of the audit procedures performed, evidence obtained, and conclusions reached as the basis for the auditor's report

Answer

Audit documentation serves as the principal record of procedures performed, evidence obtained, and conclusions reached. It supports the auditor's report, assists in planning and supervising the engagement, enables quality control reviews, and provides a record if the work is challenged.

Question 3

When assessing the risk of material misstatement, the auditor should consider which of the following?

Accepted Answer

Both inherent risk and control risk at the assertion level for classes of transactions, account balances, and disclosures

Answer

CAS 315 requires the auditor to assess the risk of material misstatement at both the financial statement level and the assertion level. This combined assessment of inherent risk and control risk drives the nature, timing, and extent of further audit procedures.

Question 4

What is the auditor's responsibility regarding going concern under CAS 570?

Accepted Answer

To evaluate management's assessment of the entity's ability to continue as a going concern and conclude whether a material uncertainty exists

Answer

CAS 570 requires the auditor to evaluate management's going concern assessment, determine if events or conditions cast significant doubt, evaluate the adequacy of disclosures, and consider the impact on the audit report. The auditor assesses but does not predict future outcomes.

Question 5

In sampling, what is the difference between statistical and non-statistical sampling?

Accepted Answer

Statistical sampling uses random selection and probability theory to evaluate results; non-statistical sampling relies on the auditor's professional judgment for selection and evaluation

Answer

Statistical sampling uses random selection methods and probability theory to evaluate sample results, allowing the auditor to quantify sampling risk. Non-statistical sampling uses auditor judgment for sample selection and evaluation. Both are acceptable under CAS when properly applied.

CPA CFE Practice Test

CPA CFE Practice Test

CPA CFE Audit and Assurance 3