,Auditing & Assurance Services, 7e (Louwers)
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Chapter 1 Auditing and Assurance Services
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1) The audit objective that all transactions and accounts that should be presented in the financial
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statements are in fact included is related to which of the PCAOB assertions?
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A) Existence.
B) Rights and obligations.h h
C) Completeness.
D) Valuation.
Answer: C
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Difficulty: 1Easy
h h h
Topic: Management's Financial Statement Assertions
h h h h
Learning Objective: 01-03 Describe and define the assertions that management makes about the
h h h h h h h h h h h h
recognition, measurement, presentation, and disclosure of the financial statements and explain why
h h h h h h h h h h h h
auditors use them as the focal point of the audit.
h h h h h h h h h h
Blooms: Remember h
AACSB: Analytical Thinkingh h
Accessibility: Keyboard Navigation
h h h
2) Cutoff tests designed to detect purchases made before the end of the year that have been
h h h h h h h h h h h h h h h
recorded in the subsequent year provide assurance about management's assertion of:
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A) presentation and disclosure. h h
B) completeness.
C) rights and obligations.
h h
D) existence.
Answer: B
h h
Difficulty: 2Medium
h h h
Topic: Management's Financial Statement Assertions
h h h h
Learning Objective: 01-03 Describe and define the assertions that management makes about the
h h h h h h h h h h h h
recognition, measurement, presentation, and disclosure of the financial statements and explain why
h h h h h h h h h h h h
auditors use them as the focal point of the audit.
h h h h h h h h h h
Blooms: Remember h
AACSB: Analytical Thinkingh h
Accessibility: Keyboard Navigation
h h h
1
Copyright © 2018 McGraw-Hill h h h
,3) During an audit of an entity's stockholders' equity accounts, the auditor determines whether
h h h h h h h h h h h h
there are restrictions on retained earnings resulting from loans, agreements, or state law. This
h h h h h h h h h h h h h h
audit procedure most likely is intended to verify management's assertion of:
h h h h h h h h h h h
A) existence or occurrence. h h
B) completeness.
C) valuation or allocation. h h
D) presentationanddisclosure. h h
Answer: D
h h
Difficulty: 2 Medium h h
Topic: Management's Financial Statement Assertions
h h h h
Learning Objective: 01-03 Describe and define the assertions that management makes about the
h h h h h h h h h h h h
recognition, measurement, presentation, and disclosure of the financial statements and explain why
h h h h h h h h h h h h
auditors use them as the focal point of the audit.
h h h h h h h h h h
Blooms: Remember h
AACSB: Analytical Thinking h h
Accessibility: Keyboard Navigation
h h h
4) The confirmation of an account payable balance selected from the general ledger provides
h h h h h h h h h h h h
primary evidence regarding which management assertion?
h h h h h h
A) Completeness.
B) Valuation.
C) Allocation.
D) Existence.
Answer: D
h h
Difficulty: 2Medium
h h h
Topic: Management's Financial Statement Assertions
h h h h
Learning Objective: 01-03 Describe and define the assertions that management makes about the
h h h h h h h h h h h h
recognition, measurement, presentation, and disclosure of the financial statements and explain why
h h h h h h h h h h h h
auditors use them as the focal point of the audit.
h h h h h h h h h h
Blooms: Remember h
AACSB: Analytical Thinking h h
Accessibility: Keyboard Navigation
h h h
5) What type of evidence would provide the highest level of assurance in an attestation
h h h h h h h h h h h h h
engagement?
h
A) Evidence secured solely from within the entity.
h h h h h h
B) Evidence obtained from independent sources.
h h h h
C) Evidence obtained indirectly. h h
D) Evidence obtained from multiple internal inquiries.
h h h h h
Answer: B
h h
Difficulty: 3 Hard h h
Topic: Auditing, Attestation, and Assurance Services
h h h h h
Learning Objective: 01-02 Define and contrast financial statement auditing, attestation, and assurance
h h h h h h h h h h h
services.
h
Blooms: Remember h
AACSB: Analytical Thinking h h
Accessibility: Keyboard Navigation
h h h
2
Copyright © 2018 McGraw-Hill h h h
, 6) Which of the following management assertions is an auditor most likely testing if the audit
h h h h h h h h h h h h h h
objective states that all inventory on hand is reflected in the ending inventory balance?
h h h h h h h h h h h h h h
A) The entity has rights to the inventory.
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B) Inventory is properly valued. h h h
C) Inventory is properly presented in the financial statements.
h h h h h h h
D) Inventoryiscomplete. h h
Answer: D
h h
Difficulty: 3 Hard h h
Topic: Management's Financial Statement Assertions
h h h h
Learning Objective: 01-03 Describe and define the assertions that management makes about the
h h h h h h h h h h h h
recognition, measurement, presentation, and disclosure of the financial statements and explain why
h h h h h h h h h h h h
auditors use them as the focal point of the audit.
h h h h h h h h h h
Blooms: Remember h
AACSB: Analytical Thinking
h h
Accessibility: Keyboard Navigation
h h h
7) An auditor traces the serial numbers on equipment to a nonissuer's sub-ledger. Which of the
h h h h h h h h h h h h h h
following management assertions is supported by this test?
h h h h h h h h
A) Valuation and allocation. h h
B) Completeness.
C) Rights and obligations.
h h
D) Presentationanddisclosure. h h
Answer: B
h h
Difficulty: 3 Hard h h
Topic: Management's Financial Statement Assertions
h h h h
Learning Objective: 01-03 Describe and define the assertions that management makes about the
h h h h h h h h h h h h
recognition, measurement, presentation, and disclosure of the financial statements and explain why
h h h h h h h h h h h h
auditors use them as the focal point of the audit.
h h h h h h h h h h
Blooms: Remember h
AACSB: Analytical Thinking
h h
Accessibility: Keyboard Navigation
h h h
3
Copyright © 2018 McGraw-Hill h h h
h h h h h
Chapter 1 Auditing and Assurance Services
h h h h h h
1) The audit objective that all transactions and accounts that should be presented in the financial
h h h h h h h h h h h h h h
statements are in fact included is related to which of the PCAOB assertions?
h h h h h h h h h h h h h
A) Existence.
B) Rights and obligations.h h
C) Completeness.
D) Valuation.
Answer: C
h h
Difficulty: 1Easy
h h h
Topic: Management's Financial Statement Assertions
h h h h
Learning Objective: 01-03 Describe and define the assertions that management makes about the
h h h h h h h h h h h h
recognition, measurement, presentation, and disclosure of the financial statements and explain why
h h h h h h h h h h h h
auditors use them as the focal point of the audit.
h h h h h h h h h h
Blooms: Remember h
AACSB: Analytical Thinkingh h
Accessibility: Keyboard Navigation
h h h
2) Cutoff tests designed to detect purchases made before the end of the year that have been
h h h h h h h h h h h h h h h
recorded in the subsequent year provide assurance about management's assertion of:
h h h h h h h h h h h
A) presentation and disclosure. h h
B) completeness.
C) rights and obligations.
h h
D) existence.
Answer: B
h h
Difficulty: 2Medium
h h h
Topic: Management's Financial Statement Assertions
h h h h
Learning Objective: 01-03 Describe and define the assertions that management makes about the
h h h h h h h h h h h h
recognition, measurement, presentation, and disclosure of the financial statements and explain why
h h h h h h h h h h h h
auditors use them as the focal point of the audit.
h h h h h h h h h h
Blooms: Remember h
AACSB: Analytical Thinkingh h
Accessibility: Keyboard Navigation
h h h
1
Copyright © 2018 McGraw-Hill h h h
,3) During an audit of an entity's stockholders' equity accounts, the auditor determines whether
h h h h h h h h h h h h
there are restrictions on retained earnings resulting from loans, agreements, or state law. This
h h h h h h h h h h h h h h
audit procedure most likely is intended to verify management's assertion of:
h h h h h h h h h h h
A) existence or occurrence. h h
B) completeness.
C) valuation or allocation. h h
D) presentationanddisclosure. h h
Answer: D
h h
Difficulty: 2 Medium h h
Topic: Management's Financial Statement Assertions
h h h h
Learning Objective: 01-03 Describe and define the assertions that management makes about the
h h h h h h h h h h h h
recognition, measurement, presentation, and disclosure of the financial statements and explain why
h h h h h h h h h h h h
auditors use them as the focal point of the audit.
h h h h h h h h h h
Blooms: Remember h
AACSB: Analytical Thinking h h
Accessibility: Keyboard Navigation
h h h
4) The confirmation of an account payable balance selected from the general ledger provides
h h h h h h h h h h h h
primary evidence regarding which management assertion?
h h h h h h
A) Completeness.
B) Valuation.
C) Allocation.
D) Existence.
Answer: D
h h
Difficulty: 2Medium
h h h
Topic: Management's Financial Statement Assertions
h h h h
Learning Objective: 01-03 Describe and define the assertions that management makes about the
h h h h h h h h h h h h
recognition, measurement, presentation, and disclosure of the financial statements and explain why
h h h h h h h h h h h h
auditors use them as the focal point of the audit.
h h h h h h h h h h
Blooms: Remember h
AACSB: Analytical Thinking h h
Accessibility: Keyboard Navigation
h h h
5) What type of evidence would provide the highest level of assurance in an attestation
h h h h h h h h h h h h h
engagement?
h
A) Evidence secured solely from within the entity.
h h h h h h
B) Evidence obtained from independent sources.
h h h h
C) Evidence obtained indirectly. h h
D) Evidence obtained from multiple internal inquiries.
h h h h h
Answer: B
h h
Difficulty: 3 Hard h h
Topic: Auditing, Attestation, and Assurance Services
h h h h h
Learning Objective: 01-02 Define and contrast financial statement auditing, attestation, and assurance
h h h h h h h h h h h
services.
h
Blooms: Remember h
AACSB: Analytical Thinking h h
Accessibility: Keyboard Navigation
h h h
2
Copyright © 2018 McGraw-Hill h h h
, 6) Which of the following management assertions is an auditor most likely testing if the audit
h h h h h h h h h h h h h h
objective states that all inventory on hand is reflected in the ending inventory balance?
h h h h h h h h h h h h h h
A) The entity has rights to the inventory.
h h h h h h
B) Inventory is properly valued. h h h
C) Inventory is properly presented in the financial statements.
h h h h h h h
D) Inventoryiscomplete. h h
Answer: D
h h
Difficulty: 3 Hard h h
Topic: Management's Financial Statement Assertions
h h h h
Learning Objective: 01-03 Describe and define the assertions that management makes about the
h h h h h h h h h h h h
recognition, measurement, presentation, and disclosure of the financial statements and explain why
h h h h h h h h h h h h
auditors use them as the focal point of the audit.
h h h h h h h h h h
Blooms: Remember h
AACSB: Analytical Thinking
h h
Accessibility: Keyboard Navigation
h h h
7) An auditor traces the serial numbers on equipment to a nonissuer's sub-ledger. Which of the
h h h h h h h h h h h h h h
following management assertions is supported by this test?
h h h h h h h h
A) Valuation and allocation. h h
B) Completeness.
C) Rights and obligations.
h h
D) Presentationanddisclosure. h h
Answer: B
h h
Difficulty: 3 Hard h h
Topic: Management's Financial Statement Assertions
h h h h
Learning Objective: 01-03 Describe and define the assertions that management makes about the
h h h h h h h h h h h h
recognition, measurement, presentation, and disclosure of the financial statements and explain why
h h h h h h h h h h h h
auditors use them as the focal point of the audit.
h h h h h h h h h h
Blooms: Remember h
AACSB: Analytical Thinking
h h
Accessibility: Keyboard Navigation
h h h
3
Copyright © 2018 McGraw-Hill h h h
