Previous Midterm Exam

Previous Midterm Exam - LH Winter 2010 Previous Midterm...

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LH Winter 2010 Previous Midterm Exam Page 1 of 8 Question 1 – Multiple Choice Total Marks: 15 (1 mark per question) Total Time Allocation: 30 minutes [ Please answer in the examination booklet(s) provided ] 1. Which one of the following represents a violation of the Rules of Professional Conduct regarding independence? a. PA accepted an audit client where PA’s sister is the Controller. b. PA provided advice to a client about the new International Financial Reporting Standards. c. PA obtained a loan from an audit client that is a financial institution. d. PA prepared a tax return for one of its audit clients. 2. After year end, management realized that their inventory balance was overstated by $200 due to the fact that consignment inventory was incorrectly included in the inventory count. Total materiality for the audit is $1,000. Based on this situation, what is the best report to issue? a. A qualified opinion due to a GAAP departure. b. An unqualified opinion. c. An adverse opinion due to a pervasive GAAP departure. d. An unqualified opinion with an emphasis paragraph. 3. Which one of the following with respect to audit risk is incorrect ? a. Audit risk is usually higher for a public company versus a private company. b. The only part of audit risk that management can control is control risk. c. The level of audit risk affects the materiality level for the audit. d. Audit risk should be reassessed throughout the entire audit. 4. Which one of the following best describes an auditor’s objective when obtaining an understanding of the business and its environment? a. To obtain an understanding of how the business operates. b. To identify which business risks are significant to the Financial Statements. c. To understand how the business measures and reviews their performance. d. To evaluate how the business operates. 5. Which one of the following pertaining to auditor’s performance of tests of controls is correct ? a. Tests of controls and tests of details (substantive tests) differ in their objectives and thus cannot be tested at the same time. b. Tests of controls must test all of the entity’s controls. c. When the auditor assesses control risk as low based on the design and implementation of controls, the auditor can choose to perform tests of controls. d. Tests of controls are only performed at interim and not year-end.
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LH Winter 2010 Previous Midterm Exam Page 2 of 8 6. Which one of the following with respect to engagement letters is false ? a. The engagement letter is the contract between management and the auditors. b. The engagement letter can be an oral agreement that documents the terms of the current year’s audit engagement. c. The fact that the engagement letter is a contract allows the possibility for the auditors to be sued by the client under contract law. d. The engagement letter must be signed by the client and returned to the auditors
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This note was uploaded on 05/09/2011 for the course RSM 323 taught by Professor Lisaharvey during the Spring '11 term at University of Toronto.

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Previous Midterm Exam - LH Winter 2010 Previous Midterm...

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