Louwers ly Sna Strawer Thibodeе
Auditing & Assurance Services, 7e (Louwers)
Chapter 1 Auditing and Assurance Services
1) The audit objective that all transactions and accounts that should be presented in the financial
statements are in fact included is related to which of the PCAOB assertions?
A) Existence.
B) Rights and obligations.
C) Completeness.
D) Valuation.
Answer: C
Difficulty: 1 Easy
Topic: Management's Financial Statement Assertions
Learning Objective: 01-03 Describe and define the assertions that management makes about the
recognition, measurement, presentation, and disclosure of the financial statements and explain
why auditors use them as the focal point of the audit.
Blooms: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
2) Cutoff tests designed to detect purchases made before the end of the year that have been
recorded in the subsequent year provide assurance about management's assertion of:
A) presentation and disclosure.
B) completeness.
C) rights and obligations.
D) existence.
Answer: B
Difficulty: 2 Medium
Topic: Management's Financial Statement Assertions
Learning Objective: 01-03 Describe and define the assertions that management makes about the
recognition, measurement, presentation, and disclosure of the financial statements and explain
why auditors use them as the focal point of the audit.
Blooms: Remember
Auditing &
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Assurance Services 7e
DEA 1
Copyright © 2018 McGraw-Hill
,3) During an audit of an entity's stockholders' equity accounts, the auditor determines whether 6) Which of the following management assertions is an auditor most likely testing if the audit
there are restrictions on retained earnings resulting from loans, agreements, or state law. This objective states that all inventory on hand is reflected in the ending inventory balance?
audit procedure most likely is intended to verify management's assertion of: A) The entity has rights to the inventory.
A) existence or occurrence. B) Inventory is properly valued.
B) completeness. C) Inventory is properly presented in the financial statements.
C) valuation or allocation. D) Inventory is complete.
D) presentation and disclosure. Answer: D
Answer: D Difficulty: 3 Hard
Difficulty: 2 Medium Topic: Management's Financial Statement Assertions
Topic: Management's Financial Statement Assertions Learning Objective: 01-03 Describe and define the assertions that management makes about the
Learning Objective: 01-03 Describe and define the assertions that management makes about the recognition, measurement, presentation, and disclosure of the financial statements and explain
recognition, measurement, presentation, and disclosure of the financial statements and explain why auditors use them as the focal point of the audit.
why auditors use them as the focal point of the audit. Blooms: Remember
Blooms: Remember AACSB: Analytical Thinking
AACSB: Analytical Thinking Accessibility: Keyboard Navigation
Accessibility: Keyboard Navigation
7) An auditor traces the serial numbers on equipment to a nonissuer's sub-ledger. Which of the
4) The confirmation of an account payable balance selected from the general ledger provides following management assertions is supported by this test?
primary evidence regarding which management assertion? A) Valuation and allocation.
A) Completeness. B) Completeness.
B) Valuation. C) Rights and obligations.
C) Allocation. D) Presentation and disclosure.
D) Existence. Answer: B
Answer: D Difficulty: 3 Hard
Difficulty: 2 Medium Topic: Management's Financial Statement Assertions
Topic: Management's Financial Statement Assertions Learning Objective: 01-03 Describe and define the assertions that management makes about the
Learning Objective: 01-03 Describe and define the assertions that management makes about the recognition, measurement, presentation, and disclosure of the financial statements and explain
recognition, measurement, presentation, and disclosure of the financial statements and explain why auditors use them as the focal point of the audit.
why auditors use them as the focal point of the audit. Blooms: Remember
Blooms: Remember AACSB: Analytical Thinking
AACSB: Analytical Thinking Accessibility: Keyboard Navigation
Accessibility: Keyboard Navigation
5) What type of evidence would provide the highest level of assurance in an attestation
engagement?
A) Evidence secured solely from within the entity.
B) Evidence obtained from independent sources.
C) Evidence obtained indirectly.
D) Evidence obtained from multiple internal inquiries.
Answer: B
Difficulty: 3 Hard
Topic: Auditing, Attestation, and Assurance Services
Learning Objective: 01-02 Define and contrast financial statement auditing, attestation, and
assurance services.
Blooms: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
2 3
Copyright © 2018 McGraw-Hill Copyright © 2018 McGraw-Hill
,8) An auditor has substantial doubt about the entity's ability to continue as a going concern for a 10) Which of the following is a management assertion regarding account balances at the period
reasonable period of time because of negative cash flows and working capital deficiencies. end?
Under these circumstances, the auditor would be most concerned about the: A) Transactions and events that have been recorded have occurred and pertain to the entity.
A) control environment factors that affect the organizational structure. B) Transactions and events have been recorded in the proper accounts.
B) correlation of detection risk and inherent risk. C) The entity holds or controls the rights to assets, and liabilities are obligations of the entity.
C) effectiveness of the entity's internal control activities. D) Amounts and other data related to the transactions and events have been recorded
D) possible effects on the entity's financial statements. appropriately.
Answer: D Answer: C
Difficulty: 3 Hard Difficulty: 3 Hard
Topic: Management's Financial Statement Assertions Topic: Management's Financial Statement Assertions
Learning Objective: 01-03 Describe and define the assertions that management makes about the Learning Objective: 01-03 Describe and define the assertions that management makes about the
recognition, measurement, presentation, and disclosure of the financial statements and explain recognition, measurement, presentation, and disclosure of the financial statements and explain
why auditors use them as the focal point of the audit. why auditors use them as the focal point of the audit.
Blooms: Remember Blooms: Remember
AACSB: Analytical Thinking AACSB: Analytical Thinking
Accessibility: Keyboard Navigation Accessibility: Keyboard Navigation
9) Which of the following types of audit evidence provides the least assurance of reliability? 11) A practitioner is engaged to express an opinion on management's assertion that the square
A) Receivable confirmations received from the client's customers. footage of a warehouse offered for sale is 150,000 square feet. The practitioner should refer to
B) Prenumbered receiving reports completed by the client's employees. which of the following sources for professional guidance?
C) Prior months' bank statements obtained from the client. A) Statement of Auditing Standards.
D) Municipal property tax bills prepared in the client's name. B) Statements on Standards for Attestation Engagements.
Answer: B C) Statements on Standards for Accounting and Review Services.
Difficulty: 3 Hard D) Statements on Standards for Consulting Services.
Topic: Management's Financial Statement Assertions Answer: B
Learning Objective: 01-03 Describe and define the assertions that management makes about the Difficulty: 3 Hard
recognition, measurement, presentation, and disclosure of the financial statements and explain Topic: Auditing, Attestation, and Assurance Services
why auditors use them as the focal point of the audit. Learning Objective: 01-02 Define and contrast financial statement auditing, attestation, and
Blooms: Remember assurance services.
AACSB: Analytical Thinking Blooms: Remember
Accessibility: Keyboard Navigation AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
4 5
Copyright © 2018 McGraw-Hill Copyright © 2018 McGraw-Hill
, 12) In auditing the long-term debt account, an auditor's procedures most likely would focus 14) An auditor selected items from the client's detailed inventory listing (that agreed to the
primarily on management's assertion of: financial statements). During the physical inventory observation, the auditor then found each
A) existence. item selected and counted the number of units on hand. Assuming that the amount on hand was
B) completeness. the same as the amount in the client's detailed inventory listing, this procedure most likely would
C) allocation. provide evidence concerning management's assertion of:
D) rights and obligations. A) completeness.
Answer: B B) valuation.
Difficulty: 2 Medium C) presentation and disclosure.
Topic: Management's Financial Statement Assertions D) existence.
Learning Objective: 01-03 Describe and define the assertions that management makes about the E) rights and obligations.
recognition, measurement, presentation, and disclosure of the financial statements and explain Answer: D
why auditors use them as the focal point of the audit. Difficulty: 2 Medium
Blooms: Remember Topic: Management's Financial Statement Assertions
AACSB: Analytical Thinking Learning Objective: 01-03 Describe and define the assertions that management makes about the
Accessibility: Keyboard Navigation recognition, measurement, presentation, and disclosure of the financial statements and explain
why auditors use them as the focal point of the audit.
13) An auditor selected items for test counts from the client's warehouse during the physical Blooms: Remember
inventory observation. The auditor then traced these test counts into the detailed inventory listing AACSB: Analytical Thinking
that ultimately agreed to the financial statements. This procedure most likely provided evidence Accessibility: Keyboard Navigation
concerning management's assertion of:
A) completeness. 15) According to PCAOB Auditing Standard No. 2201 (AS 2201), the auditor should identify
B) valuation. significant accounts and disclosures and their relevant assertions. Which of the following
C) presentation and disclosure. financial statement assertions is not explicitly identified in AS 2201?
D) existence. A) Completeness.
E) rights and obligations. B) Valuation or allocation.
Answer: A C) Accuracy.
Difficulty: 2 Medium D) Existence or occurrence.
Topic: Management's Financial Statement Assertions E) All of these are assertions identified in AS 5.
Learning Objective: 01-03 Describe and define the assertions that management makes about the Answer: C
recognition, measurement, presentation, and disclosure of the financial statements and explain Difficulty: 2 Medium
why auditors use them as the focal point of the audit. Topic: Management's Financial Statement Assertions
Blooms: Remember Learning Objective: 01-03 Describe and define the assertions that management makes about the
AACSB: Analytical Thinking recognition, measurement, presentation, and disclosure of the financial statements and explain
Accessibility: Keyboard Navigation why auditors use them as the focal point of the audit.
Blooms: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
6 7
Copyright © 2018 McGraw-Hill Copyright © 2018 McGraw-Hill
Auditing & Assurance Services, 7e (Louwers)
Chapter 1 Auditing and Assurance Services
1) The audit objective that all transactions and accounts that should be presented in the financial
statements are in fact included is related to which of the PCAOB assertions?
A) Existence.
B) Rights and obligations.
C) Completeness.
D) Valuation.
Answer: C
Difficulty: 1 Easy
Topic: Management's Financial Statement Assertions
Learning Objective: 01-03 Describe and define the assertions that management makes about the
recognition, measurement, presentation, and disclosure of the financial statements and explain
why auditors use them as the focal point of the audit.
Blooms: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
2) Cutoff tests designed to detect purchases made before the end of the year that have been
recorded in the subsequent year provide assurance about management's assertion of:
A) presentation and disclosure.
B) completeness.
C) rights and obligations.
D) existence.
Answer: B
Difficulty: 2 Medium
Topic: Management's Financial Statement Assertions
Learning Objective: 01-03 Describe and define the assertions that management makes about the
recognition, measurement, presentation, and disclosure of the financial statements and explain
why auditors use them as the focal point of the audit.
Blooms: Remember
Auditing &
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Assurance Services 7e
DEA 1
Copyright © 2018 McGraw-Hill
,3) During an audit of an entity's stockholders' equity accounts, the auditor determines whether 6) Which of the following management assertions is an auditor most likely testing if the audit
there are restrictions on retained earnings resulting from loans, agreements, or state law. This objective states that all inventory on hand is reflected in the ending inventory balance?
audit procedure most likely is intended to verify management's assertion of: A) The entity has rights to the inventory.
A) existence or occurrence. B) Inventory is properly valued.
B) completeness. C) Inventory is properly presented in the financial statements.
C) valuation or allocation. D) Inventory is complete.
D) presentation and disclosure. Answer: D
Answer: D Difficulty: 3 Hard
Difficulty: 2 Medium Topic: Management's Financial Statement Assertions
Topic: Management's Financial Statement Assertions Learning Objective: 01-03 Describe and define the assertions that management makes about the
Learning Objective: 01-03 Describe and define the assertions that management makes about the recognition, measurement, presentation, and disclosure of the financial statements and explain
recognition, measurement, presentation, and disclosure of the financial statements and explain why auditors use them as the focal point of the audit.
why auditors use them as the focal point of the audit. Blooms: Remember
Blooms: Remember AACSB: Analytical Thinking
AACSB: Analytical Thinking Accessibility: Keyboard Navigation
Accessibility: Keyboard Navigation
7) An auditor traces the serial numbers on equipment to a nonissuer's sub-ledger. Which of the
4) The confirmation of an account payable balance selected from the general ledger provides following management assertions is supported by this test?
primary evidence regarding which management assertion? A) Valuation and allocation.
A) Completeness. B) Completeness.
B) Valuation. C) Rights and obligations.
C) Allocation. D) Presentation and disclosure.
D) Existence. Answer: B
Answer: D Difficulty: 3 Hard
Difficulty: 2 Medium Topic: Management's Financial Statement Assertions
Topic: Management's Financial Statement Assertions Learning Objective: 01-03 Describe and define the assertions that management makes about the
Learning Objective: 01-03 Describe and define the assertions that management makes about the recognition, measurement, presentation, and disclosure of the financial statements and explain
recognition, measurement, presentation, and disclosure of the financial statements and explain why auditors use them as the focal point of the audit.
why auditors use them as the focal point of the audit. Blooms: Remember
Blooms: Remember AACSB: Analytical Thinking
AACSB: Analytical Thinking Accessibility: Keyboard Navigation
Accessibility: Keyboard Navigation
5) What type of evidence would provide the highest level of assurance in an attestation
engagement?
A) Evidence secured solely from within the entity.
B) Evidence obtained from independent sources.
C) Evidence obtained indirectly.
D) Evidence obtained from multiple internal inquiries.
Answer: B
Difficulty: 3 Hard
Topic: Auditing, Attestation, and Assurance Services
Learning Objective: 01-02 Define and contrast financial statement auditing, attestation, and
assurance services.
Blooms: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
2 3
Copyright © 2018 McGraw-Hill Copyright © 2018 McGraw-Hill
,8) An auditor has substantial doubt about the entity's ability to continue as a going concern for a 10) Which of the following is a management assertion regarding account balances at the period
reasonable period of time because of negative cash flows and working capital deficiencies. end?
Under these circumstances, the auditor would be most concerned about the: A) Transactions and events that have been recorded have occurred and pertain to the entity.
A) control environment factors that affect the organizational structure. B) Transactions and events have been recorded in the proper accounts.
B) correlation of detection risk and inherent risk. C) The entity holds or controls the rights to assets, and liabilities are obligations of the entity.
C) effectiveness of the entity's internal control activities. D) Amounts and other data related to the transactions and events have been recorded
D) possible effects on the entity's financial statements. appropriately.
Answer: D Answer: C
Difficulty: 3 Hard Difficulty: 3 Hard
Topic: Management's Financial Statement Assertions Topic: Management's Financial Statement Assertions
Learning Objective: 01-03 Describe and define the assertions that management makes about the Learning Objective: 01-03 Describe and define the assertions that management makes about the
recognition, measurement, presentation, and disclosure of the financial statements and explain recognition, measurement, presentation, and disclosure of the financial statements and explain
why auditors use them as the focal point of the audit. why auditors use them as the focal point of the audit.
Blooms: Remember Blooms: Remember
AACSB: Analytical Thinking AACSB: Analytical Thinking
Accessibility: Keyboard Navigation Accessibility: Keyboard Navigation
9) Which of the following types of audit evidence provides the least assurance of reliability? 11) A practitioner is engaged to express an opinion on management's assertion that the square
A) Receivable confirmations received from the client's customers. footage of a warehouse offered for sale is 150,000 square feet. The practitioner should refer to
B) Prenumbered receiving reports completed by the client's employees. which of the following sources for professional guidance?
C) Prior months' bank statements obtained from the client. A) Statement of Auditing Standards.
D) Municipal property tax bills prepared in the client's name. B) Statements on Standards for Attestation Engagements.
Answer: B C) Statements on Standards for Accounting and Review Services.
Difficulty: 3 Hard D) Statements on Standards for Consulting Services.
Topic: Management's Financial Statement Assertions Answer: B
Learning Objective: 01-03 Describe and define the assertions that management makes about the Difficulty: 3 Hard
recognition, measurement, presentation, and disclosure of the financial statements and explain Topic: Auditing, Attestation, and Assurance Services
why auditors use them as the focal point of the audit. Learning Objective: 01-02 Define and contrast financial statement auditing, attestation, and
Blooms: Remember assurance services.
AACSB: Analytical Thinking Blooms: Remember
Accessibility: Keyboard Navigation AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
4 5
Copyright © 2018 McGraw-Hill Copyright © 2018 McGraw-Hill
, 12) In auditing the long-term debt account, an auditor's procedures most likely would focus 14) An auditor selected items from the client's detailed inventory listing (that agreed to the
primarily on management's assertion of: financial statements). During the physical inventory observation, the auditor then found each
A) existence. item selected and counted the number of units on hand. Assuming that the amount on hand was
B) completeness. the same as the amount in the client's detailed inventory listing, this procedure most likely would
C) allocation. provide evidence concerning management's assertion of:
D) rights and obligations. A) completeness.
Answer: B B) valuation.
Difficulty: 2 Medium C) presentation and disclosure.
Topic: Management's Financial Statement Assertions D) existence.
Learning Objective: 01-03 Describe and define the assertions that management makes about the E) rights and obligations.
recognition, measurement, presentation, and disclosure of the financial statements and explain Answer: D
why auditors use them as the focal point of the audit. Difficulty: 2 Medium
Blooms: Remember Topic: Management's Financial Statement Assertions
AACSB: Analytical Thinking Learning Objective: 01-03 Describe and define the assertions that management makes about the
Accessibility: Keyboard Navigation recognition, measurement, presentation, and disclosure of the financial statements and explain
why auditors use them as the focal point of the audit.
13) An auditor selected items for test counts from the client's warehouse during the physical Blooms: Remember
inventory observation. The auditor then traced these test counts into the detailed inventory listing AACSB: Analytical Thinking
that ultimately agreed to the financial statements. This procedure most likely provided evidence Accessibility: Keyboard Navigation
concerning management's assertion of:
A) completeness. 15) According to PCAOB Auditing Standard No. 2201 (AS 2201), the auditor should identify
B) valuation. significant accounts and disclosures and their relevant assertions. Which of the following
C) presentation and disclosure. financial statement assertions is not explicitly identified in AS 2201?
D) existence. A) Completeness.
E) rights and obligations. B) Valuation or allocation.
Answer: A C) Accuracy.
Difficulty: 2 Medium D) Existence or occurrence.
Topic: Management's Financial Statement Assertions E) All of these are assertions identified in AS 5.
Learning Objective: 01-03 Describe and define the assertions that management makes about the Answer: C
recognition, measurement, presentation, and disclosure of the financial statements and explain Difficulty: 2 Medium
why auditors use them as the focal point of the audit. Topic: Management's Financial Statement Assertions
Blooms: Remember Learning Objective: 01-03 Describe and define the assertions that management makes about the
AACSB: Analytical Thinking recognition, measurement, presentation, and disclosure of the financial statements and explain
Accessibility: Keyboard Navigation why auditors use them as the focal point of the audit.
Blooms: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
6 7
Copyright © 2018 McGraw-Hill Copyright © 2018 McGraw-Hill
