Level 1 Training Pre and Post Assessment Quiz

Level 1 Training - Pre and Post-Assessment Quiz

Confidence Check 1: What is your level of confidence to be able to provide a correct response to questions about Audit Documentation?(Required)

Guessing (<25% sure)

Unsure (≈50 % sure)

Confident (≈75 % sure)

Certain ( > 90 % sure)

You worked on an audit where fieldwork ended March 31st and the report was released April 5th. By what date must the final audit file assembly be completed and finalized, at the latest?(Required)

April 15th

May 5th

May 30th

June 4th

A staff auditor is testing 40 purchase orders. To comply with AU-C 230, which detail must she capture in the audit file?(Required)

The dollar amount of each purchase order.

The dates and purchase-order numbers of the items tested.

Total summarized value of all purchase orders selected.

Scanned image of selected purchase order.

Because the auditor has historically low return rate, they decide not to send accounts-receivable confirmations. What should the workpapers contain to explain this decision?(Required)

No specific documentation is required, provided the alternative procedures performed are fully described.

A note on the audit program indicating “confirmations not sent” or the step in the audit program marked “N/A.”

A partner’s sign-off on the audit program or workpaper approving the omission of confirmations.

A written justification for omitting confirmations and an explanation of how alternative procedures.

A audit program prepared by the audit team included a checkmark on audit procedures over the allowance for doubtful accounts and a note concluding the allowance “appears reasonable.” What minimum documentation in the audit file would be needed to accompany the conclusion?(Required)

Analysis of allowance methodology, inputs, and recalculation

Description of inquiry with management discussing their methodology including date of discussion, meeting participants, and the allowance preparers credentials

Engagement Quality Reviewer sign-off to document appropriate level of review given Revenue and A/R are presumed high risk areas.

Reference back to the risk assessment to link the conclusion to audit plan

An intern asks whether draft financial statements should be input in the audit file? What is your response.(Required)

Yes, each draft is required to be retained to allow an experienced auditor to understand the levels of review and progression.

Yes, but only the first and final draft to is required to show the evolution.

Yes, but only the Partner and EQR reviewed draft(s) is required as evidence an appropriate review was completed.

No, superseded drafts may be removed from the file.

Confidence Check 2: What is your level of confidence to be able to provide a correct response to questions about Auditing Cash?(Required)

Guessing (<25% sure)

Unsure (≈50 % sure)

Confident (≈75 % sure)

Certain ( > 90 % sure)

You identify overstatement as the main risk associated with a client's cash balance. Which of the following components of cash would you consider the assertion of completeness to be the most applicable?(Required)

Deposits in Transit

Outstanding Checks

Interest Earned

Cash Balance per General Ledger

You are inspecting a bank reconciliation an note that the ending balance on their bank reconciliation does not equal the balance on the general ledger. The client’s balance per bank statement is $20,000, and the client subtracted out deposits in transit of $3,000 and outstanding checks of $5,000. What should the ending balance per the bank reconciliation be?(Required)

$12,000

$20,000

$18,000

$22,000

Which type of cash confirmation would yous end to obtain the greatest degree of assurance about the information confirmed?(Required)

Blank confirmation.

Phone confirmation.

Positive confirmation.

Negative confirmation.

When performing confirmation procedures for cash balances, which of the following would represent management's responsibilities within the confirmation process?(Required)

Authorize the confirmations via signature

Authorize and send the confirmations

Authorize and send the confirmations, and forward any responses received to the auditor

Identify significant balances for confirmation, authorize and send the confirmations, and forward all responses to the auditor

The purpose of a bank reconciliation is to reconcile between what?(Required)

The entity’s bank account and the general ledger.

The entity’s journal entries and the bank account.

The entity’s deposited checks to the cash on hand.

The entity’s confirmed balance to the bank statement.

Confidence Check 3: What is your level of confidence to be able to provide a correct response to questions about Auditing Accounts Payable and Expenses?(Required)

Guessing (<25% sure)

Unsure (≈50 % sure)

Confident (≈75 % sure)

Certain ( > 90 % sure)

Which of the following invoices if not included in the accounts payable detail would be considered an errorfor an entity that has a 12/31 year end?(Required)

An invoice received on January 2nd for $200 of services performed by the vendor on January 1st.

An invoice with FOB Destination terms, dated December 30th, for goods totaling $500 that were received on January 1st.

An invoice with FOB Shipping Point terms, dated December 31st, for goods totaling $750 that were shipped on January 2nd.

An invoice received on January 15th for a $250 subscription covering the period from December 15th to January 15th.

Which of the following substantive auditing procedures to obtain comfort over payables is presumptively mandatory on all engagements?(Required)

Vendor confirmations.

Review accounts payable turnover.

Search for unrecorded liabilities.

Coordination of accounts payable cutoff with physical observation of inventory.

The client’s AP turnover is 9×, significantly lower than the industry peers average 15×. Which audit risk does this primarily suggest?(Required)

Unrecorded liabilites and expenses

Lack of working capital efficiency and leverage with suppliers

Strained liquidity and cash flow stress

Expenses with favorable payment terms to related parties not at arms length are flowing through A/P

For three consecutive years, accounts payable turnover has increased from 5x to 6x to 7x, while the company’s credit terms have remained consistent at “net 30.” Which audit procedure modification best addresses the implied impact to risk?(Required)

Expand the search for unrecorded liabilities by extending the cut-off period and testing a broader range of subsequent disbursements.

Increase reliance on analytical procedures, as the trend appears consistent and favorable.

Perform an additional search for unrecorded liabilities at an interim date.

Lower assessed risk and reduce sample size, as the company is demonstrating an ability to pay vendors more quickly.

Management records a material warranty accrual based on a complex actuarial estimate. Which of the following procedures would you take to address the risks?(Required)

Rely on management’s calculation and inquiry of the estimate preparer if no change to methodology and the estimate was deemed reasonable in the prior year.

Recalculate the accrual using straight-line averages.

Consider engaging a specialist to evaluate the estimate.

Recalculate the accrual and document how management verified the completeness and accuracy of inputs into the calculation.

Confidence Check 4: What is your level of confidence to be able to provide a correct response to questions about Auditing Inventory?(Required)

Guessing (<25% sure)

Unsure (≈50 % sure)

Confident (≈75 % sure)

Certain ( > 90 % sure)

You are performing the inventory observation at the client site. What is main risk you are addressing with the sheet to floor selections you make?(Required)

Existence

Completeness

Cut-Off

Valuation

A retailer’s inventory-turnover ratio slipped from 6.2× last year to 3.1× this year, while sales volume stayed flat. What misstatement risk does this trend most directly suggest?(Required)

Increased sales-returns

Obsolete or slow-moving inventory overstated on the balance sheet

Understated cost of goods sold (COGS)

Misclassification of warehouse equipment as inventory

You are performing an inventory observation and note the client has material work-in-process inventory at the time of the observation. What information should you obtain to support testing?(Required)

The sales price of the item upon completion

The last production operation completed

Purchase order from customer

Estimated material scrap rate

A company using the LIFO method records an inventory purchase at a cost of $5 on September 30. At year-end, the following values are available: Replacement cost: $4 Selling price: $8 Net realizable value: $6 At what value should the inventory be reported on the year-end balance sheet?(Required)

Replacement cost of $4

Inventory at cost of $5

Net realizable value of $6

Selling price of $8

An entity uses FIFO. The auditor selects an item with 200 items on hand as of year-end. To perform purchase price testing, what invoices should be obtained?(Required)

The most recent vendor invoice for the item to obtain the most current price as of year end

All vendor invoice(s) related to the purchase(s) of inventory on-hand only

The earliest date invoice related to the purchase of items on hand to obtain the original price of the goods

All vendor invoice(s) for the entire year under audit

$3 million of goods are stored with an outside custodian. Which evidence is normally sufficient for existence and rights?(Required)

Management representation letter

Direct written confirmation from the custodian

Copy of the storage invoice

Observation via video tour by warehouse staff

What is your level of confidence to be able to provide a correct response to questions about Auditing Property, Plant, and Equipment?(Required)

Guessing (<25% sure)

Unsure (≈50 % sure)

Confident (≈75 % sure)

Certain ( > 90 % sure)

A manufacturing company replaces a production-line conveyor belt for $42 000. The controller wants to expense the cost because it “just keeps operations running.” What should the auditor verify first to decide the proper treatment?(Required)

Review the company's annual maintenance budget to see if $42,000 was included as a planned repair.

Whether the item meets the entity’s written capitalization threshold

Whether the cash‐disbursement check for the belt cleared before year-end

Verify that the accounts-payable clerk coded the invoice to the proper GL expense account.

The client added $8 million of robotic equipment. What evidence is most appropriate to support capitalization?(Required)

Compare the capital-expenditure budget to actual spend and confirm the $8M fell within the board-approved capex limit.

Photo or video evidence of the equipment in use at the plant

An engineering estimate of future cost savings exceeds initial cost of equipment

Vendor invoice and receiving report

A specialized printing press is idle after the client lost a key customer contract. What GAAP requirement should the auditor expect the client to perform?(Required)

Change in depreciation method to expedite depreciation recognition

Test the press for impairment

Write the press off once the original use (client) is disrupted

Reclassify the press to inventory held for sale

Construction in progress (CIP) of a $900,000 renovation includes office furniture purchased six months ago and now in use. What classification should be used for the furniture?(Required)

The furniture should be expensed now it has been placed in use

The furniture should remain in CIP until project completion

The furniture should be transferred from CIP to furniture & fixtures and begin depreciation

Record the furniture as a prepaid expense until the renovation is finished, then move it to fixed assets.

Repairs and maintenance expense jumped from $200,000 to $650,000 although the average age of equipment declined. Which risk is most likely?(Required)

Duplicate capitalization of additions

Expenditures that should have been capitalized were expensed

Over-depreciation of assets

Unrecorded disposals of fully depreciated items

What is your level of confidence to be able to provide a correct response to questions about Internal Controls?(Required)

Guessing (<25% sure)

Unsure (≈50 % sure)

Confident (≈75 % sure)

Certain ( > 90 % sure)

In a small retail chain, one employee orders inventory, receives the goods, and enters the vendor invoice. Which classic duty remains un-segregated and thus presents the greatest risk?(Required)

Asset custody

Authorization

Reconciliation

Recording

Audit tests show that terminated employees retain ERP access for weeks. Which IT control listed in the deck would most directly address this issue?(Required)

Privileged-access logging

User-access reviews

Authentication controls

De-provisioning controls

A freak flood destroys a regional warehouse leading to a large loss. An audit committee member asks why “controls failed.” According to COSO, what is the best response?(Required)

We’ll tighten the frequency and rigor of cycle-count procedures so this can’t happen again.

The incident proves our monitoring activities around control effectiveness were ineffective and indicates a material weakness in the control environment.

Natural disasters are an inherent limitation of any internal-control system; controls can provide only reasonable—not absolute—assurance.

Because no controls can prevent floods, no changes to the control process or environment are required.

During planning, the auditor documents control risk as "high" and inputs flowcharts of revenue processing from the client but performs no walk-through or inquiry. Under AU-C 315, which requirement is missing?(Required)

None, additional control procedures would be required if control risk was lowered below "high".

Obtaining an understanding of design and implementation of controls

Testing operating effectiveness of controls impacting the revenue cycle

Performing testing over the effectiveness of the COSO system at the client

Before any wire transfer is released, the treasury system will not let the requestor enter bank details until a separate approver uses a hardware token to authorize the payment.(Required)

Preventive

Detective

Corrective

IT General Control

Each night an automated report lists any journal entries posted with no reference to supporting documentation. The accounting manager reviews it the next morning and follows up on exceptions.(Required)

Preventive

Detective

Corrective

IT General Control

What is your level of confidence to be able to provide a correct response to questions about Professional Skepticism and Audit Ethics?(Required)

Guessing (<25% sure)

Unsure (≈50 % sure)

Confident (≈75 % sure)

Certain ( > 90 % sure)

An engagement team documents safeguards and concludes threats are reduced to an acceptable level. Whose perspective defines that benchmark?(Required)

The engagement partner’s

A reasonable and informed third party’s

The client CFO’s

The firm’s ethics committee’s

A manager assigns a brand-new staffer with no IT background to test blockchain controls and signs off without review. Which element of due care is breached?(Required)

Diligence

Competence

Integrity

Independence

The CFO says the firm will be dismissed unless it removes a material adjustment. What threat is this?(Required)

Advocacy

Self-review

Undue influence

Familiarity

The firm’s methodology requires you to correlate fraud risk factors to audit assertions. Management override risk is rated “high.” Which action below is required by AU-C 240 regardless of assessed level of other controls?(Required)

Extended substantive testing of share-based compensation expense

Examining accounting estimates for bias

Dual-purpose walk-throughs of revenue transactions

Obtain direct written confirmation from the audit committee that no override of controls occurred.

An engagement partner asks for evidence that the team maintained “professional skepticism” regarding fraud. Which of the following best demonstrates compliance?(Required)

A checklist showing all audit steps were completed according to the audit program

Documentation of how contradictory audit evidence was considered and resolved

A memo summarizing management’s tone at the fraud-risk interview

A sign-off in the audit file that no fraud indicators remained after substantive testing

What is your level of confidence to be able to provide a correct response to questions about Risk Assessment?(Required)

Guessing (<25% sure)

Unsure (≈50 % sure)

Confident (≈75 % sure)

Certain ( > 90 % sure)

You trace one cash receipts transaction from customer order to ledger. What are you mainly trying to confirm?(Required)

Operating effectiveness of controls

Completeness of recorded cash receipts

Design and implementation of controls for that process

Valuation of revenue

A staff member wants to “just set control risk to high so we don’t have to document controls.” Why is this wrong?(Required)

We default to high control risk on every audit unless the client engages us to test controls.

There is a requirement control risk may not be high once our audit procedures are complete.

We are required to obtain an understanding and documentation of relevant controls even if control risk is high.

Nothing is wrong with this approach, it is a more efficient approach and avoids unnecessary control testing.

The client’s CEO can override any journal entry. This risk is best classified as:(Required)

Assertion-level: valuation

Assertion-level: existence

Financial statement (entity) level risk

No risk if approvals are documented

Your senior says, “We can lower this part of audit risk by doing more substantive testing.” Which component is she talking about?(Required)

Inherent Risk

Control Risk

Detection Risk

Materiality

What is your level of confidence to be able to provide a correct response to questions about the Audit Completion Phase?(Required)

Guessing (<25% sure)

Unsure (≈50 % sure)

Confident (≈75 % sure)

Certain ( > 90 % sure)

When should the auditor obtain the signed management representation letter?(Required)

Date of the financial statements

Anytime prior to the issuance of the financial statements

Dated the same day as the auditor’s report

One day subsequent to the date of the auditor's report

You could not observe inventory and no alternative procedures were possible. The amounts involved are material and pervasive. What opinion is appropriate?(Required)

Qualified (“except for”)

Adverse

Disclaimer of opinion

Unmodified with an Emphasis-of-Matter paragraph

At year-end the company’s cash flow coverage ratio dropped below the required 1.25× covenant with its lender. Which of the following pieces of evidence would most likely be sufficient to alleviate substantial-doubt (going-concern) concerns?(Required)

An amended management-representation letter in which management asserts it can obtain additional financing.

A letter from those charged with governance approving management’s cash-flow contingency plan if the debt is accelerated.

A written covenant-waiver from the lender that extends only 45 days (one fiscal quarter) beyond year-end.

A written covenant-waiver from the lender that extends at least one year beyond year-end.

What is your level of confidence to be able to provide a correct response to questions about Further Audit Procedures?(Required)

Guessing (<25% sure)

Unsure (≈50 % sure)

Confident (≈75 % sure)

Certain ( > 90 % sure)

Last year the audit team relied on an automated three-way-match control and found no deviations. The system has not changed since then. Under AU-C 330, how frequently must this control be re-tested if the auditor intends to rely on it again?(Required)

Every year, regardless of changes

Never, as long as the system remains unchanged"

At least once in every third audit, with portions of the control system tested each year

Only in years when a significant risk is identified

Accounts receivable balance is $50K but overall materiality is $1 million. Should you send A/R confirmations?(Required)

Yes, always required

No; the account balance is immaterial

Yes, unless management will attest to existence of A/R in the management rep letter

Only if control risk is low

The audit program instructs you to vouch 30 vendor invoices by matching each invoice amount to the related purchase order and receiving report. Is this a dual-purpose test, and why?(Required)

Yes, because both the purchase order and the invoice are examined

No, it serves only as a substantive test of accuracy; it does not evaluate whether a control operated

Yes, any procedure involving invoices implicitly tests a control

No, because it addresses valuation but not the approval control

What is your level of confidence to be able to provide a correct response to questions about Planning?(Required)

Guessing (<25% sure)

Unsure (≈50 % sure)

Confident (≈75 % sure)

Certain ( > 90 % sure)

Mid-engagement, the client asks the audit team to determine the fair value of intangible assets for financial statement disclosure. Which choice best maintains independence?(Required)

Accept, but add a separate statement of work

Perform the valuation; independence only forbids bookkeeping

Decline or have a separate valuation specialist engaged by management—auditors cannot create a component of the statements they audit

Perform the valuation but mark the numbers “unaudited”

The client’s pretax income swings between small profits and losses. Which benchmark is most appropriate for setting overall materiality?(Required)

Pretax income

Total revenue or gross profit

Net cash flows from financing

Prior-year net income

The client has large, judgment-heavy balances (goodwill impairment, warranty liability). Prior misstatement history is low. Overall materiality is $1,000,000. What performance materiality percentage is most appropriate?(Required)

90%

75%

50%

25%

Level 1 Training - Pre and Post-Assessment Quiz

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Melisa Galasso, CPA, CSP, CPTD