Manual solution for auditing & Assurance Services
Manual solution for auditing & Assurance Services
Systematic Approach 12th Edition 2024-2025
Study guide questions with verified answers
Assertions - ✔✔✔Expressed or implied representations by management regarding the recognition,
measurement, presentation, and disclosure of information in the financial statements and related disclosures
Auditing - ✔✔✔A systematic process of objectively obtaining and evaluating evidence regarding assertions
about economic actions and events to ascertain the degree of correspondence between those assertions and
established criteria and communicating the results to interested users
Information Asymmetry - ✔✔✔The concept that the manager generally has more information about the true
financial position and results of operations of the entity than the absentee owner does
Materiality - ✔✔✔The maximum amount by which the auditor believes the financial statements could be
misstated and still not affect the decisions of users
Misstatement - ✔✔✔A departure from the applicable reporting framework (e.g., GAAP) that, if material, causes
the financial statements to not be presented fairly. Misstatements may be classified as fraud (intentional), other
illegal acts such as noncompliance with laws and regulations (intentional or unintentional), and errors
(unintentional)
Reasonable Assurance - ✔✔✔The concept that an audit done in accordance with auditing standards may fail to
detect a material misstatement in a client's financial statements. In an auditing context this term has been defined
to mean a high but not absolute level of assurance
Reporting - ✔✔✔The end product of the auditor's work, indicating the auditing standards followed and
expressing an opinion as to whether an entity's financial statements are fairly presented in accordance with
agreed-upon criteria (e.g., GAAP)
Risk of Material Misstatement - ✔✔✔The pre-audit risk that the entity's financial statements contain a material
misstatement whether caused by error or fraud
@ pg. 1
, Manual solution for auditing & Assurance Services
Unqualified/unmodified audit report - ✔✔✔A "clean" audit report, indicating the auditor's opinion that a client's
financial statements are fairly presented in accordance with agreed-upon criteria (e.g., GAAP)
An independent audit adds value to the communication of financial information because the audit - ✔✔✔Lends
credibility to the financial statements
Which of the following best describes the reason why an independent auditor is often retained to report on
financial statements? - ✔✔✔Different interests may exist between the entity preparing the statements and the
persons using the statements, and thus outside assurance is needed to enhance the credibility of the statements
Which of the following best describes relationships among auditing, attest, and assurance services? -
✔✔✔Auditing is a type of assurance service
Which of the following statements relating to attest and assurance services is not correct? - ✔✔✔Financial
statement auditing is a form of attest service but it is not an assurance service
For what primary purpose does the auditor obtain an understanding of the entity and its environment? - ✔✔✔To
plan the audit and determine the nature, timing, and extent of audit procedures to be performed
Which of the following statements best describes the role of materiality in a financial statement audit? -
✔✔✔The lower the level at which the auditor assesses materiality, the greater the amount of evidence the
auditor must gather
Which of the following is the most important reason for an auditor to gain an understanding of an audit client's
system of internal control over financial reporting? - ✔✔✔Understanding a client's system of internal control
can help the auditor assess risk and identify areas where financial statement misstatements might be more likely
Preliminary engagement activities include - ✔✔✔Understanding the client and the client's industry, determining
audit engagement team requirements, and ensuring the independence of the audit team and audit firm
Which of the following statements best describes what is meant by an unqualified audit opinion? -
✔✔✔Issuance of a standard unqualified auditor's report indicates that in the auditor's opinion the client's
@ pg. 2
Manual solution for auditing & Assurance Services
Systematic Approach 12th Edition 2024-2025
Study guide questions with verified answers
Assertions - ✔✔✔Expressed or implied representations by management regarding the recognition,
measurement, presentation, and disclosure of information in the financial statements and related disclosures
Auditing - ✔✔✔A systematic process of objectively obtaining and evaluating evidence regarding assertions
about economic actions and events to ascertain the degree of correspondence between those assertions and
established criteria and communicating the results to interested users
Information Asymmetry - ✔✔✔The concept that the manager generally has more information about the true
financial position and results of operations of the entity than the absentee owner does
Materiality - ✔✔✔The maximum amount by which the auditor believes the financial statements could be
misstated and still not affect the decisions of users
Misstatement - ✔✔✔A departure from the applicable reporting framework (e.g., GAAP) that, if material, causes
the financial statements to not be presented fairly. Misstatements may be classified as fraud (intentional), other
illegal acts such as noncompliance with laws and regulations (intentional or unintentional), and errors
(unintentional)
Reasonable Assurance - ✔✔✔The concept that an audit done in accordance with auditing standards may fail to
detect a material misstatement in a client's financial statements. In an auditing context this term has been defined
to mean a high but not absolute level of assurance
Reporting - ✔✔✔The end product of the auditor's work, indicating the auditing standards followed and
expressing an opinion as to whether an entity's financial statements are fairly presented in accordance with
agreed-upon criteria (e.g., GAAP)
Risk of Material Misstatement - ✔✔✔The pre-audit risk that the entity's financial statements contain a material
misstatement whether caused by error or fraud
@ pg. 1
, Manual solution for auditing & Assurance Services
Unqualified/unmodified audit report - ✔✔✔A "clean" audit report, indicating the auditor's opinion that a client's
financial statements are fairly presented in accordance with agreed-upon criteria (e.g., GAAP)
An independent audit adds value to the communication of financial information because the audit - ✔✔✔Lends
credibility to the financial statements
Which of the following best describes the reason why an independent auditor is often retained to report on
financial statements? - ✔✔✔Different interests may exist between the entity preparing the statements and the
persons using the statements, and thus outside assurance is needed to enhance the credibility of the statements
Which of the following best describes relationships among auditing, attest, and assurance services? -
✔✔✔Auditing is a type of assurance service
Which of the following statements relating to attest and assurance services is not correct? - ✔✔✔Financial
statement auditing is a form of attest service but it is not an assurance service
For what primary purpose does the auditor obtain an understanding of the entity and its environment? - ✔✔✔To
plan the audit and determine the nature, timing, and extent of audit procedures to be performed
Which of the following statements best describes the role of materiality in a financial statement audit? -
✔✔✔The lower the level at which the auditor assesses materiality, the greater the amount of evidence the
auditor must gather
Which of the following is the most important reason for an auditor to gain an understanding of an audit client's
system of internal control over financial reporting? - ✔✔✔Understanding a client's system of internal control
can help the auditor assess risk and identify areas where financial statement misstatements might be more likely
Preliminary engagement activities include - ✔✔✔Understanding the client and the client's industry, determining
audit engagement team requirements, and ensuring the independence of the audit team and audit firm
Which of the following statements best describes what is meant by an unqualified audit opinion? -
✔✔✔Issuance of a standard unqualified auditor's report indicates that in the auditor's opinion the client's
@ pg. 2
