RSM 323 - Fall 2010 Midterm Exam - SOLUTION

RSM 323 Fall 2010 - RSM323H1F(FALL 2010 L HARVEY MIDTERM EXAM SOLUTION Question 1 Multiple Choice Total Marks 15(1 mark per question Total Time

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RSM323H1F (FALL 2010) L. HARVEY MIDTERM EXAM – SOLUTION Page 1 of 9 Question 1 – Multiple Choice Total Marks: 15 (1 mark per question) Total Time Allocation: 30 minutes 1. Which one of the following statements regarding professional skepticism is incorrect ? a. Professional skepticism includes a questioning mind. b. Professional skepticism requires recognizing that circumstances always exist that cause the financial statements to be materially misstated. c. Professional skepticism includes being alert to conditions that may indicate possible misstatement due to error or fraud. d. Professional skepticism includes critically assessing audit evidence. Answer: B 2. Which one of the following with respect to engagement letters is false ? a. Engagement letters must be obtained before the audit begins. b. Engagement letters should be obtained by the auditors each year. c. Engagement letters are the contract between management and the auditor. d. Engagement letters have to be in written form. Answer: A 3. PA firm performed an audit where the agreed upon terms stated that the auditor’s report would be delivered by March 31. PA firm performed the audit as requested and delivered the auditor’s report to the client on April 30. Under which part of common law could the client sue the PA firm? a. Contract Law. b. Criminal Law. c. Tort Law. d. None since there is no reason to sue PA firm. Answer: A 4. Which one of the following statements regarding the objectives and requirements in CAS 200 is incorrect ? a. An auditor must comply with relevant ethical requirements. b. An auditor is required to exercise professional judgment. c. An auditor must always comply with every CAS. d. An auditor must obtain sufficient and appropriate audit evidence. Answer: C 5. Which threat to independence involves an auditor promoting a client’s position or opinion? a. Self-review. b. Advocacy. c. Familiarity. d. Self-interest. Answer: B
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RSM323H1F (FALL 2010) L. HARVEY MIDTERM EXAM – SOLUTION Page 2 of 9 6. Which one of the following is an indicator of high control risk? a. A process includes several control weaknesses. b. A process has few controls. c. A process lacks proper segregations of duties. d. The process that exists for management to assess risk is very structured. Answer: A, B or C 7. Which one of the following situations regarding the Rules of Professional Conduct is incorrect ? a. A PA can discuss information regarding his/her audit with an external consultant hired by the client without first obtaining permission. b. A PA can accept an engagement that involves threats to independence as long as appropriate safeguards are established. c. A PA should never associate himself/herself with any information that he/she knows is false or misleading. d. A PA that is a predecessor auditor is required to respond to the successor
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This note was uploaded on 04/28/2011 for the course RSM 323 taught by Professor Lisaharvey during the Spring '11 term at University of Toronto- Toronto.

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RSM 323 Fall 2010 - RSM323H1F(FALL 2010 L HARVEY MIDTERM EXAM SOLUTION Question 1 Multiple Choice Total Marks 15(1 mark per question Total Time

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