Auditing: The Art and Science of Assurance Engagements 15th Canadian Edition by Alvin A Arens Test b

Answer: C
14) One of the reasons that an auditor must be competent is so that they can
A) explain to staff how the bookkeeping should be done.
B) capture the information properly in the computer files.
C) record the transactions properly for the underlying records.
D) understand the engagement risks and the criteria used by the client.
Answer: D
15) One of the reasons that an auditor must be competent is so that they can
A) record the transactions properly for the underlying records.
B) capture the information properly in the computer files.
C) explain to staff how the bookkeeping should be done.
D) select the type and amount of evidence to accumulate.
Answer: D
16) It is important for the auditor to be independent because
A) otherwise, the auditor might not be as knowledgeable of the subject matter and the criteria.
B) otherwise, the auditor would not charge a fair rate to the client.
C) this will prevent bias in accumulating and evaluating evidence.
D) the Canadian tax authorities require that the auditor be independent.
Answer: C
17) As an external auditor is paid a fee by a client company, he or she
A) is never considered to be independent.
B) must receive approval from the relevant provincial securities commission before conducting an audit.
C) is absolutely independent and may conduct an audit.
D) may still be sufficiently independent to conduct an audit.
Answer: D
18) The independent auditor's report is the
A) report presented to management about the possible improvements.
B) invoice of the auditor detailing the work they have performed.
C) communication of the outcome of auditor's evaluation to the users.
D) set of audited financial statements.
Answer: C
19) In the audit of a corporate tax return, the CRA auditor should demonstrate competence in the use of
A) standard personal and corporate tax preparation software.
B) external databases that contain economic statistics.
C) the Income Tax Act and accompanying regulations.
D) database management software for the use of client- based research.
Answer: C
20) In the audit of an individual's tax return, the criteria used would be
A) the Income Tax Act. B) an accounting framework.
C) the client's policies for taxable income. D) the auditor's judgment.
Answer: A
21) In the audit of a corporate tax return, the report provided by the Canada Revenue Agency auditor would
describe
A) the likely accounting errors that could contribute to tax errors.
B) an opinion on the likelihood of tax return error.
C) management issues with respect to accurately reporting taxes.
D) that the corporate income tax return is in compliance with the Income Tax Act.
Answer: D
ESSAY. Write your answer in the space provided or on a separate sheet of paper.
22) Figure 1-2
Use your knowledge of the definition of auditing and Figure 1-2: Audit of a Corporate Tax Return to explain
how an auditor would conduct a Corporate Tax Return audit.
Answer: First, the concept of a competent, independent person requires that the practitioner who is conducting an
assurance engagement should have "adequate proficiency," which means that the tax auditor should be
competent in the fields of taxation and the fields that need to be assessed, such as accounting, information
systems, data management and access and internal controls. The auditor should also use due care and
have an objective state of mind. This means that the auditor should be independent of the client and do
their best using their skills when conducting the audit.
The second part of Figure 1- 2 relates to the accumulation and evaluation of evidence using a risk-based
approach. This means that the auditor would collect evidence based upon risks of violations in the tax
return by the client.
The next three parts are connected. The auditor determines the correspondence of the information
provided by the client (which could be the financial statements, tax return and the quality of the
calculations within the tax return) to established criteria (the Income Tax Act).
Finally, the auditor issues a report (Notice of Assessment) to summarize the findings.
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
23) A bank manager is evaluating an application for a bank loan from a new corporate client. The bank manager
decides to request audited financial statements. Which of the following likely informed this decision?
A) The bank manager believes audited financial statements will be necessary for the Canada Revenue
Agency.
B) The bank manager is seeking to lower the risk- free interest rate that applies to the corporation.
C) The bank manager believes the opinion of a knowledgeable third party is necessary to reduce the