D215 Auditing - Set 2 - Part 1

Test your knowledge of technical writing concepts with these practice questions. Each question includes detailed explanations to help you understand the correct answers.

Question 1: Which document sets out the terms of the audit engagement, including the scope, timing, and client responsibilities?

Management letter

Audit report

Audit strategy

Engagement letter

Question 2: Which component of internal control focuses on identifying and responding to risks that may prevent an organization from achieving its objectives?

Control activities

Monitoring

Risk assessment

Information and communication

Question 3: An auditor is verifying whether recorded liabilities on the balance sheet actually exist. Which assertion is the auditor addressing?

Completeness

Accuracy

Existence

Valuation

Question 4: Which phase of the audit includes understanding the client and its environment, including its internal controls?

Risk response

Risk assessment

Reporting

Substantive testing

Question 5: What is the purpose of performing substantive procedures during an audit?

To form an opinion on the financial statements

To test the design of internal controls

To evaluate the effectiveness of controls

To gather evidence about specific transactions and balances

Question 6: When should an auditor issue an adverse opinion?

When the client has significant internal control deficiencies

When financial statements are materially misstated and not in accordance with GAAP

When the client refuses to provide certain requested documents

When the auditor is unable to obtain sufficient appropriate audit evidence

Question 7: Which of the following is an example of a detective control?

Segregation of duties

Reconciliation of bank statements

Authorization of transactions

Physical security controls

Question 8: Which risk refers to the susceptibility of a financial statement assertion to a misstatement before considering any related controls?

Control risk

Detection risk

Inherent risk

Audit risk

Question 9: What is the purpose of the management representation letter?

To outline the responsibilities of the audit committee

To confirm management’s responsibility for the financial statements

To serve as primary audit evidence

To document disagreements between management and auditors

Question 10: An auditor has identified a deficiency in internal controls that is important enough to merit attention by those charged with governance, but not severe enough to be a material weakness. What is this deficiency called?

Significant deficiency

Control weakness

Internal control deficiency

Material misstatement

Question 11: What type of risk exists when an auditor concludes that a material misstatement exists when it does not?

Control risk

Inherent risk

Risk of incorrect rejection

Detection risk

Question 12: In which phase of the audit would an auditor review client-prepared financial statements for material misstatements and form an opinion?

Risk assessment

Risk response

Reporting

Planning

Question 13: Which of the following is an example of a substantive test of details?

Reviewing sales invoices for accuracy

Testing the design of internal controls

Observing physical inventory counts

Analyzing trends in financial data

Question 14: What type of audit procedure is performed when an auditor selects source documents and traces them forward to the journal or ledger?

Vouching

Tracing

Recalculation

Confirmation

Question 15: Which component of internal control focuses on ensuring that information is effectively communicated throughout an organization?

Control environment

Information and communication

Monitoring

Control activities

Question 16: An auditor calculates the times-interest-earned ratio. What is the auditor assessing?

The company’s ability to pay its long-term debt

The company’s profitability

The company’s liquidity

The company’s efficiency

Question 17: A company's controls allow management to monitor the internal control process and make necessary adjustments. Which type of control is this?

Preventive control

Detective control

Corrective control

Internal control deficiency

Question 18: When an auditor is testing a client’s payroll system, which type of audit procedure should they perform to detect unrecorded liabilities?

Recalculate payroll expenses

Trace payroll transactions

Vouch payroll entries

Review subsequent payments

Question 19: What is the primary focus of the audit risk model?

Assessing the quality of internal controls

Reducing the likelihood of a material misstatement

Determining the effectiveness of the audit team

Ensuring compliance with regulatory requirements

Question 20: Which assertion is most relevant when an auditor is concerned with the completeness of recorded expenses?

Existence

Completeness

Accuracy

Valuation

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