Auditing Exam #1 Multiple Choice
UPDATED ACTUAL Exam Questions and
CORRECT Answers
1-13 An independent audit aids in the communication of economic data because the audit -
CORRECT ANSWER - B. Lends credibility to the financial statements
1-14 Which of the following best describes the reason why an independent auditor is often
retained to report on financial statements? - CORRECT ANSWER - B. Different interests
may exist between the entity preparing the statements and the persons using the statements, thus
outside assurance is needed to enhance the credibility of the statements
1-15 Which of the following best describes relationships among auditing, attest, and assurance
services? - CORRECT ANSWER - C. Auditing is a type of assurance service
1-16 Which of the following statements relating to attest and assurance services is not correct? -
CORRECT ANSWER - C. Financial statement auditing is a form of attest service but it is
not an assurance service
1-17 For what primary purpose does the auditor obtain an understanding of the entity and its
environment? - CORRECT ANSWER - C. TO plan the audit and determine the nature,
timing, and extent of audit procedures to be performed
1-18 Which of the following statements best describes the role of materiality in a financial
statement audit? - CORRECT ANSWER - C. The lower the level at which the auditor
assesses materiality, the greater the amount of evidence the auditor must gather
1-19 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? - CORRECT
ANSWER - A. 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
, 1-20 Preliminary engagement activities include: - CORRECT ANSWER - D. All the
above
1-21 Which of the following statements best describes what is meant by an unqualified audit
opinion? - CORRECT ANSWER - D. Issuance of a standard unqualified auditors report
indicates that in the auditor's opinion the client's financial statements are fairly presented in
accordance with agreed-upon criteria, with no need for the inclusion of qualifying phrases
1-22 The auditing standards used to guide the conduct of the audit are - CORRECT
ANSWER - D. Explicitly referred to in the scope paragraph of the auditor's standard report
1-23 A client has used an inappropriate method of accounting for its pension liability on the
balance sheet. The resulting misstatement is material, but the auditor does not consider it to be
pervasive. The auditor is unable to convince the client to alter its accounting treatment. The rest
of the financial statements are fairly stated in the auditor's opinion. Which kind of audit report
would an auditor most likely issue under these circumstances? - CORRECT ANSWER -
B. Qualified opinion due to departure from GAAP
2-15 Which of the following is not part of the role of internal auditors? - CORRECT
ANSWER - B. Providing reports on the reliability of financial statements to investors and
creditors
2-16 Operational auditing is oriented primarily towards - CORRECT ANSWER - A.
Future improvements to accomplish the goals of management
2-17 Which of the following would be considered an assurance service engagement? -
CORRECT ANSWER - A. I only
2-18 Which of the following best places the events in the last decade in proper sequence? -
CORRECT ANSWER - D. Increased consulting services to auditees, Enron and other
scandals, Sarbanes-Oxley Act, prohibition of most consulting work for auditees, establishment of
PCAOB
UPDATED ACTUAL Exam Questions and
CORRECT Answers
1-13 An independent audit aids in the communication of economic data because the audit -
CORRECT ANSWER - B. Lends credibility to the financial statements
1-14 Which of the following best describes the reason why an independent auditor is often
retained to report on financial statements? - CORRECT ANSWER - B. Different interests
may exist between the entity preparing the statements and the persons using the statements, thus
outside assurance is needed to enhance the credibility of the statements
1-15 Which of the following best describes relationships among auditing, attest, and assurance
services? - CORRECT ANSWER - C. Auditing is a type of assurance service
1-16 Which of the following statements relating to attest and assurance services is not correct? -
CORRECT ANSWER - C. Financial statement auditing is a form of attest service but it is
not an assurance service
1-17 For what primary purpose does the auditor obtain an understanding of the entity and its
environment? - CORRECT ANSWER - C. TO plan the audit and determine the nature,
timing, and extent of audit procedures to be performed
1-18 Which of the following statements best describes the role of materiality in a financial
statement audit? - CORRECT ANSWER - C. The lower the level at which the auditor
assesses materiality, the greater the amount of evidence the auditor must gather
1-19 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? - CORRECT
ANSWER - A. 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
, 1-20 Preliminary engagement activities include: - CORRECT ANSWER - D. All the
above
1-21 Which of the following statements best describes what is meant by an unqualified audit
opinion? - CORRECT ANSWER - D. Issuance of a standard unqualified auditors report
indicates that in the auditor's opinion the client's financial statements are fairly presented in
accordance with agreed-upon criteria, with no need for the inclusion of qualifying phrases
1-22 The auditing standards used to guide the conduct of the audit are - CORRECT
ANSWER - D. Explicitly referred to in the scope paragraph of the auditor's standard report
1-23 A client has used an inappropriate method of accounting for its pension liability on the
balance sheet. The resulting misstatement is material, but the auditor does not consider it to be
pervasive. The auditor is unable to convince the client to alter its accounting treatment. The rest
of the financial statements are fairly stated in the auditor's opinion. Which kind of audit report
would an auditor most likely issue under these circumstances? - CORRECT ANSWER -
B. Qualified opinion due to departure from GAAP
2-15 Which of the following is not part of the role of internal auditors? - CORRECT
ANSWER - B. Providing reports on the reliability of financial statements to investors and
creditors
2-16 Operational auditing is oriented primarily towards - CORRECT ANSWER - A.
Future improvements to accomplish the goals of management
2-17 Which of the following would be considered an assurance service engagement? -
CORRECT ANSWER - A. I only
2-18 Which of the following best places the events in the last decade in proper sequence? -
CORRECT ANSWER - D. Increased consulting services to auditees, Enron and other
scandals, Sarbanes-Oxley Act, prohibition of most consulting work for auditees, establishment of
PCAOB
