Mekelle University

College of Business and Economics

Department of Accounting and Finance
Course Title: Auditing Principles & Practices I
Year: III
Semester: I

Course Code: AcFn-3161

Academic Year: 2016/17

Individual Assignment I (Chapters 1 and 2)

Part I. Multiple choices.
1. The objective of _________ audit is for the auditor to express an opinion on the truth and
fairness of financial statements.
A. Internal
B. External

C. Tax
D. All of these

2. The main necessity for conducting the audit of financial statements stems from the fact
that
A. the persons responsible for the preparation of financial statements are often different
from the owners of large corporations.
B. the persons responsible for the preparation of financial statements are often the same as
the owners of large corporations.
C. accountants normally commit errors which should be inspected by auditors.
D. shareholders have to rely on internal verification by auditors in order to gain reasonable
assurance that the accounts are free from material misstatements.

3. Which one of the following is not limitation of audit of financial statements?

A. Use of professional judgment
B. Use of sampling
C. Risk of fraud

D. Time constraints
E. None of these

4. True and fair view in auditing means that the financial statements are
A. free from misstatements and accurately represent the financial performance and position
of the entity.
B. free from material misstatements and faithfully represent the financial performance and
position of the entity.
C. free from misstatements and faithfully represent the financial performance and position of
the entity.
D. free from material misstatements and accurately represent the financial performance and
position of the entity.

5. __________ audit seeks to determine if departments in College of Business and

Economics are adhering to federal, regional, and Mekelle University rules, regulations,
policies, and procedures.
A. Financial statement
B. Operational

C. Compliance
D. Tax audit

6. Internal auditors can be engaged in which one of the following activities?

A. Assessing the management of risk
B. Evaluating controls and advising managers at all levels

C. Analyzing operations and confirm information

D. All of these

7. A CPA in public practice may not disclose confidential client information regarding
auditing services without the clients consent in response to which of the following
situations?
A.
B.
C.
D.

A review of the CPAs professional practice by a state CPA society.

A letter to the client from the IRS.
An inquiry from the professional ethics division of the AICPA.
A court-ordered subpoena or summons.

8. What does not constitute immediate family members?

A.
B.
C.
D.

Spouse
Spousal equivalent
Dependent children
Non-dependent children

Part II Give brief answers to the following questions.

1. Enumerate the main difference between auditing and accounting.
2. Expert CPA Firm performs an audit of Derban Cement Factory. One of the firms
managers, who plans to provide a significant amount of tax services to the company, has
a spouse who inherited a small amount of share of stock in it. The manager does not
work in the same office as the lead audit partner.
Q. Is the firms independence impaired? Explain your answer.
3. The spouse of a member (external Auditor) is employed as Accounting Department head
by a client.
Q. Would the independence of the member or member's firm be considered to be
impaired under these circumstances?
4. What is the basic purpose of a code of ethics for the audit profession?
5. Comment on the following: In performing an attest service for a client, a CPA may
perform any other services that the client requests.
6. Identify the circumstances under which a CPA may not perform professional services on
a contingent fee basis.
7. Covered member has to meet what four general standards?
8. Briefly explain the rules for commissions and referrals by CPAs.
9. What three requirements must the auditor satisfy before it is acceptable to do
bookkeeping and auditing for a client?
10.

What are the most common causes of information risk? How can the risk be reduced?

Notice that you are requested to submit your answers for ONLY the short answer type
questions (part II).
Submission deadline: Friday December 9, 2016