, Chapter 01 ixix
ixix An Introduction to Assurance and Financial Statement
i xi x ixix ixi x ixix i xi x i xi x
ixi x Auditing
True / False Questions
ixix ixix ixix
1. Independence standards are required for audits of public companies, but not for
ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix
audits of private companies.
ixix ixix ixix ixix
True False
2. Decision makers demand reliable information that is provided by accountants.
i xi x i xi x i xi x i xi x i xi x i xi x i xi x i xi x i xi x
True False
3. Information ixix asymmetry ixix seldom ixix occurs.
True False
4. Conflicts of interest often occur between absentee owners and managers.
ixix ixix ixix ixix ixix ixix ixix ixix ixix
True False
5. Auditing services and attestation services are the same.
i xi x i xi x i xi x i xi x i xi x i xi x i xix
True False
6. Auditing is a type of attest service. ixix ixix ixix ixix ixix ixix
True False
7. Testing all transactions that occurred during the period is cost prohibitive.
ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix
True False
Multiple Choice Questions ixix ixix
1-1
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix
McGraw-Hill Education. ixix i x i x
,8. Why do auditors generally use a sampling approach to evidence gathering?
ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix
A. Auditors are experts and do not need to look at much to know whether the
ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix
financial statements are correct or not.
ixix ixix ixix ixix ixix ixix
B. Auditors must balance the cost of the audit with the ixix ixix ixix ixix ixix ixix ixix ixix ixix
need for precision.
ixix ixix ixix
C. Auditors must limit their exposure to their auditee to ixix ixix ixix ixix ixix ixix ixix ixix
maintain independence.
ixix ixix
D. The auditor's relationship with the auditee is generally adversarial, so the
ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix
auditor will not have access to all of the financial information of the
ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix
company.
ixix
9. Which of the following statements best describes a relationship between sample
ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix
size and other elements of auditing?
ixix ixix ixix ixix ixix ixix
A. If materiality increases, so will
ixix ixix ixix ixix
the sample size.
ixix ixix ixix
B. If the desired level of assurance increases, sample sizes
ixix ixix ixix ixix ixix ixix ixix ixix
can be smaller.
ixix ixix ixix
C. If materiality decreases, sample size will need
ixix ixix ixix ixix ixix ixix
to increase.
ixix ixix
D. There is no relationship between sample size and materiality or the desired
ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix
level of assurance.
ixix ixix ixix
10. Which of the following statements about the study of auditing is NOT true?
ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix
A. The study of auditing can be valuable to future accountants and business
ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix
decision makers whether or not they plan to become auditors.
ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix
B. The study of auditing focuses on learning the analytical and logical skills
ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix
necessary to evaluate the relevance and reliability of information.
ixix ixix ixix ixix ixix ixix ixix ixix ixix
C. The study of auditing focuses on learning the rules, techniques, and
ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix
computations required to analyze financial statements.
ixix ixix ixix ixix ixix ixix
D. The study of auditing begins with the understanding of a coherent logical
ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix
framework and techniques useful for gathering and analyzing evidence about
ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix
others' assertions.
ixix ixix
11. The basic purpose of a financial statement audit is to
ixix ixix ixix ixix ixix ixix ixix ixix ixix
A. Detect
fraud.
ixix
B. Examine individual transactions so that the auditor may certify
ixix ixix ixix ixix ixix ixix ixix ixix
as to their validity.
ixix ixix ixix ixix
C. Provide assurance regarding whether the auditee's financial statements
ixix ixix ixix ixix ixix ixix ixix
are fairly stated.
ixix ixix ixix
D. Assure the consistent application of correct
ixix ixix ixix ixix ixix
accounting procedures.
ixix ixix
1-2
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix
McGraw-Hill Education. ixix i x i x
, 12. Assurance services may improve all of the following except
i xi x i xi x i xi x i xi x i xi x i xi x i xi x i xi x
A. Relevanc
e. ixix
B. Credibilit
y. ixix
C. Periodicit
y. ixix
D. Reliabilit
y. ixix
13. Evidence ixix is ixix reliable ixix if ixix it
A. Signals the true state of a ixix ixix ixix ixix ixix
management assertion.
ixix ixix
B. Applies to the period ixix ixix ixix
being audited.
ixix ixix
C. Relates to the audit assertion ixix ixix ixix ixix
being tested.
ixix ixix
D. Is consistent with management's
ixix ixix ixix
assertions.
ixix
14. Which of the following best describes the concept of audit risk?
ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix
A. The risk of the auditor being sued because of association
ixix ixix ixix ixix ixix ixix ixix ixix ixix
with an auditee.
ixix ixix ixix
B. The risk that the auditor will provide a "clean" opinion on financial
ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix
statements that are, in fact, materially misstated.
ixix ixix ixix ixix ixix ixix ixix
C. The overall risk that a material misstatement exists in the
ixix ixix ixix ixix ixix ixix ixix ixix ixix
financial statements.
ixix ixix
D. The risk that auditors use audit procedures that
ixix ixix ixix ixix ixix ixix ixix
are inappropriate.
ixix ixix
15. An auditor who accepts an audit engagement and does not possess expertise with
ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix
respect to the business entity's industry, should
ixix ixix ixix ixix ixix ixix ixix
A. Engage financial experts familiar with the nature of
ixix ixix ixix ixix ixix ixix ixix
the business entity.
ixix ixix ixix
B. Obtain a knowledge of matters that relate to the nature
ixix ixix ixix ixix ixix ixix ixix ixix ixix
of the entity's business.
ixix ixix ixix ixix
C. Refer a substantial portion of the audit to another CPA, who will act
ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix
as the principal auditor.
ixix ixix ixix ixix
D. First inform management that an unqualified opinion
ixix ixix ixix ixix ixix ixix
cannot be issued.
ixix ixix ixix
1-3
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix
McGraw-Hill Education. ixix i x i x
ixix An Introduction to Assurance and Financial Statement
i xi x ixix ixi x ixix i xi x i xi x
ixi x Auditing
True / False Questions
ixix ixix ixix
1. Independence standards are required for audits of public companies, but not for
ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix
audits of private companies.
ixix ixix ixix ixix
True False
2. Decision makers demand reliable information that is provided by accountants.
i xi x i xi x i xi x i xi x i xi x i xi x i xi x i xi x i xi x
True False
3. Information ixix asymmetry ixix seldom ixix occurs.
True False
4. Conflicts of interest often occur between absentee owners and managers.
ixix ixix ixix ixix ixix ixix ixix ixix ixix
True False
5. Auditing services and attestation services are the same.
i xi x i xi x i xi x i xi x i xi x i xi x i xix
True False
6. Auditing is a type of attest service. ixix ixix ixix ixix ixix ixix
True False
7. Testing all transactions that occurred during the period is cost prohibitive.
ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix
True False
Multiple Choice Questions ixix ixix
1-1
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix
McGraw-Hill Education. ixix i x i x
,8. Why do auditors generally use a sampling approach to evidence gathering?
ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix
A. Auditors are experts and do not need to look at much to know whether the
ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix
financial statements are correct or not.
ixix ixix ixix ixix ixix ixix
B. Auditors must balance the cost of the audit with the ixix ixix ixix ixix ixix ixix ixix ixix ixix
need for precision.
ixix ixix ixix
C. Auditors must limit their exposure to their auditee to ixix ixix ixix ixix ixix ixix ixix ixix
maintain independence.
ixix ixix
D. The auditor's relationship with the auditee is generally adversarial, so the
ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix
auditor will not have access to all of the financial information of the
ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix
company.
ixix
9. Which of the following statements best describes a relationship between sample
ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix
size and other elements of auditing?
ixix ixix ixix ixix ixix ixix
A. If materiality increases, so will
ixix ixix ixix ixix
the sample size.
ixix ixix ixix
B. If the desired level of assurance increases, sample sizes
ixix ixix ixix ixix ixix ixix ixix ixix
can be smaller.
ixix ixix ixix
C. If materiality decreases, sample size will need
ixix ixix ixix ixix ixix ixix
to increase.
ixix ixix
D. There is no relationship between sample size and materiality or the desired
ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix
level of assurance.
ixix ixix ixix
10. Which of the following statements about the study of auditing is NOT true?
ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix
A. The study of auditing can be valuable to future accountants and business
ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix
decision makers whether or not they plan to become auditors.
ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix
B. The study of auditing focuses on learning the analytical and logical skills
ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix
necessary to evaluate the relevance and reliability of information.
ixix ixix ixix ixix ixix ixix ixix ixix ixix
C. The study of auditing focuses on learning the rules, techniques, and
ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix
computations required to analyze financial statements.
ixix ixix ixix ixix ixix ixix
D. The study of auditing begins with the understanding of a coherent logical
ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix
framework and techniques useful for gathering and analyzing evidence about
ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix
others' assertions.
ixix ixix
11. The basic purpose of a financial statement audit is to
ixix ixix ixix ixix ixix ixix ixix ixix ixix
A. Detect
fraud.
ixix
B. Examine individual transactions so that the auditor may certify
ixix ixix ixix ixix ixix ixix ixix ixix
as to their validity.
ixix ixix ixix ixix
C. Provide assurance regarding whether the auditee's financial statements
ixix ixix ixix ixix ixix ixix ixix
are fairly stated.
ixix ixix ixix
D. Assure the consistent application of correct
ixix ixix ixix ixix ixix
accounting procedures.
ixix ixix
1-2
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix
McGraw-Hill Education. ixix i x i x
, 12. Assurance services may improve all of the following except
i xi x i xi x i xi x i xi x i xi x i xi x i xi x i xi x
A. Relevanc
e. ixix
B. Credibilit
y. ixix
C. Periodicit
y. ixix
D. Reliabilit
y. ixix
13. Evidence ixix is ixix reliable ixix if ixix it
A. Signals the true state of a ixix ixix ixix ixix ixix
management assertion.
ixix ixix
B. Applies to the period ixix ixix ixix
being audited.
ixix ixix
C. Relates to the audit assertion ixix ixix ixix ixix
being tested.
ixix ixix
D. Is consistent with management's
ixix ixix ixix
assertions.
ixix
14. Which of the following best describes the concept of audit risk?
ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix
A. The risk of the auditor being sued because of association
ixix ixix ixix ixix ixix ixix ixix ixix ixix
with an auditee.
ixix ixix ixix
B. The risk that the auditor will provide a "clean" opinion on financial
ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix
statements that are, in fact, materially misstated.
ixix ixix ixix ixix ixix ixix ixix
C. The overall risk that a material misstatement exists in the
ixix ixix ixix ixix ixix ixix ixix ixix ixix
financial statements.
ixix ixix
D. The risk that auditors use audit procedures that
ixix ixix ixix ixix ixix ixix ixix
are inappropriate.
ixix ixix
15. An auditor who accepts an audit engagement and does not possess expertise with
ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix
respect to the business entity's industry, should
ixix ixix ixix ixix ixix ixix ixix
A. Engage financial experts familiar with the nature of
ixix ixix ixix ixix ixix ixix ixix
the business entity.
ixix ixix ixix
B. Obtain a knowledge of matters that relate to the nature
ixix ixix ixix ixix ixix ixix ixix ixix ixix
of the entity's business.
ixix ixix ixix ixix
C. Refer a substantial portion of the audit to another CPA, who will act
ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix
as the principal auditor.
ixix ixix ixix ixix
D. First inform management that an unqualified opinion
ixix ixix ixix ixix ixix ixix
cannot be issued.
ixix ixix ixix
1-3
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix ixix
McGraw-Hill Education. ixix i x i x
