TEST BANK
for Auditing A Practical Approach, 4th Canadian Edition
Moroney, Campbell, Warren. All Chapters 1-14 ||Complete
A+ Guide
, TEST BANK for Auditing A Practical Approach, 4th
Canadian Edition Moroney, Campbell, Warren. All Chapters
1-14 ||Complete A+ Guide
Chapter 1 - 14
CHAPTER 1
INTRODUCTION AND OVERVIEW OF AUDIT AND ASSURANCE
CHAPTER LEARNING OBJECTIVES
1. Define an assurance engagement.
An assurance engagement involves an assurance provider arriving at an opinion about some
information being provided by their client to a third party. A financial statement audit is one type of
assurance engagement. This engagement involves an auditor arriving at an opinion about the fair
presentation of the financial statements. The audit report is addressed to the shareholders of the
company being audited, but other users may read the financial statements. Learning about auditing
and assurance requires an understanding of auditing and assurance terminology, including terms such
as audit risk, materiality, internal controls, listed entity, and assertions.
2. Explain why there is a demand for audit and assurance services.
Financial statement users include investors (shareholders), suppliers, customers, lenders, employees,
governments, and the general public. These groups of users demand audited financial statements
because of their remoteness from the entity, accounting complexity, their incentives competing with
those of the entity‘s managers, and their need for reliable information on which to base decisions.
The theories used to describe the demand for audit and assurance services are agency theory, the
information hypothesis, and the insurance hypothesis.
3. Differentiate between types of assurance services.
Assurance services include financial statement audits, compliance audits, performance audits,
comprehensive audits, internal audits, and assurance on corporate social responsibility (CSR)
disclosures.
4. Explain the different levels of assurance.
The different levels of assurance include reasonable assurance, which is the highest level of assurance,
limited assurance, and no assurance. Reasonable assurance is provided on an audit of a company‘s
financial statements. Limited assurance is provided in a review of a company‘s financial statements.
No assurance is provided in a compilation engagement.
5. Outline different audit opinions
An auditor can issue an unmodified opinion, also known as a clean report, or an unmodified opinion
with an emphasis of matter paragraph. Alternatively, a modified opinion may be issued as a
qualified, an adverse, or a disclaimer of opinion.
6. Differentiate between the roles of the preparer and the auditor, and discuss the
,1-2
different firms that provide assurance services.
It is the responsibility of a company‘s governing body to ensure that its financial statements are
relevant, reliable, comparable, understandable, and true and fair. It is the responsibility of the auditor
to form an opinion on the fair presentation of the financial statements. In doing, so the auditor must
maintain professional scepticism and utilize professional judgement and due care.
The firms that provide assurance services include the Big-4 international firms, the national firms
(with international links), local and regional firms, and consulting firms that tend to specialize in
assurance of CSR and environmental disclosures.
7. Identify the different regulators, legislation, and regulations surrounding the assurance
process.
Regulators of the assurance process include the Auditing and Assurance Standards Board (AASB),
Canadian Securities Administrators (CSA) and the various provincial securities commissions, and the
Canadian Public Accountability Board (CPAB). Relevant legislation includes the Canada Business
Corporations Act (CBCA). CPA Canada is the professional accounting body in Canada, responsible
for the Chartered Professional Accountant (CPA) designation.
8. Describe the audit expectation gap.
The audit expectation gap occurs when there is a difference between the expectations of assurance
providers and financial statement or other users. The gap occurs when user beliefs do not align
with what an auditor has actually done.
, 1-3
TRUE-FALSE STATEMENTS
1. Only current investors (not potential investors) are considered to be users of the financial
statements.
Answer: False
Bloomcode: Knowledge
Difficulty: Easy
Learning Objective: Explain why there is a demand for audit and assurance services. Section
Reference: 1.2 Demand for audit and assurance services
CPA Competency: Audit and Assurance AACSB:
Analytic
2. Insurance hypothesis is a means whereby the investor can guarantee the success of their
investment.
Answer: False
Bloomcode: Comprehension
Difficulty: Easy
Learning Objective: Explain why there is a demand for audit and assurance services. Section
Reference: 1.2 Demand for audit and assurance services
CPA Competency: Audit and Assurance AACSB:
Analytic
3. A compliance audit involves gathering evidence to ascertain whether the person or entity under
review has followed the rules, policies, procedures, laws, and regulations with which they must
conform.
Answer: True
Bloomcode: Comprehension
Difficulty: Easy
Learning Objective: Differentiate between types of assurance services. Section
Reference: 1.3 Different assurance services
CPA Competency: Audit and Assurance AACSB:
Analytic
4. An operational audit is an example of a compliance audit.
Answer: False
Bloomcode: Knowledge
Difficulty: Easy
Learning Objective: Differentiate between types of assurance services. Section
Reference: 1.3 Different assurance services
CPA Competency: Audit and Assurance AACSB:
Analytic
for Auditing A Practical Approach, 4th Canadian Edition
Moroney, Campbell, Warren. All Chapters 1-14 ||Complete
A+ Guide
, TEST BANK for Auditing A Practical Approach, 4th
Canadian Edition Moroney, Campbell, Warren. All Chapters
1-14 ||Complete A+ Guide
Chapter 1 - 14
CHAPTER 1
INTRODUCTION AND OVERVIEW OF AUDIT AND ASSURANCE
CHAPTER LEARNING OBJECTIVES
1. Define an assurance engagement.
An assurance engagement involves an assurance provider arriving at an opinion about some
information being provided by their client to a third party. A financial statement audit is one type of
assurance engagement. This engagement involves an auditor arriving at an opinion about the fair
presentation of the financial statements. The audit report is addressed to the shareholders of the
company being audited, but other users may read the financial statements. Learning about auditing
and assurance requires an understanding of auditing and assurance terminology, including terms such
as audit risk, materiality, internal controls, listed entity, and assertions.
2. Explain why there is a demand for audit and assurance services.
Financial statement users include investors (shareholders), suppliers, customers, lenders, employees,
governments, and the general public. These groups of users demand audited financial statements
because of their remoteness from the entity, accounting complexity, their incentives competing with
those of the entity‘s managers, and their need for reliable information on which to base decisions.
The theories used to describe the demand for audit and assurance services are agency theory, the
information hypothesis, and the insurance hypothesis.
3. Differentiate between types of assurance services.
Assurance services include financial statement audits, compliance audits, performance audits,
comprehensive audits, internal audits, and assurance on corporate social responsibility (CSR)
disclosures.
4. Explain the different levels of assurance.
The different levels of assurance include reasonable assurance, which is the highest level of assurance,
limited assurance, and no assurance. Reasonable assurance is provided on an audit of a company‘s
financial statements. Limited assurance is provided in a review of a company‘s financial statements.
No assurance is provided in a compilation engagement.
5. Outline different audit opinions
An auditor can issue an unmodified opinion, also known as a clean report, or an unmodified opinion
with an emphasis of matter paragraph. Alternatively, a modified opinion may be issued as a
qualified, an adverse, or a disclaimer of opinion.
6. Differentiate between the roles of the preparer and the auditor, and discuss the
,1-2
different firms that provide assurance services.
It is the responsibility of a company‘s governing body to ensure that its financial statements are
relevant, reliable, comparable, understandable, and true and fair. It is the responsibility of the auditor
to form an opinion on the fair presentation of the financial statements. In doing, so the auditor must
maintain professional scepticism and utilize professional judgement and due care.
The firms that provide assurance services include the Big-4 international firms, the national firms
(with international links), local and regional firms, and consulting firms that tend to specialize in
assurance of CSR and environmental disclosures.
7. Identify the different regulators, legislation, and regulations surrounding the assurance
process.
Regulators of the assurance process include the Auditing and Assurance Standards Board (AASB),
Canadian Securities Administrators (CSA) and the various provincial securities commissions, and the
Canadian Public Accountability Board (CPAB). Relevant legislation includes the Canada Business
Corporations Act (CBCA). CPA Canada is the professional accounting body in Canada, responsible
for the Chartered Professional Accountant (CPA) designation.
8. Describe the audit expectation gap.
The audit expectation gap occurs when there is a difference between the expectations of assurance
providers and financial statement or other users. The gap occurs when user beliefs do not align
with what an auditor has actually done.
, 1-3
TRUE-FALSE STATEMENTS
1. Only current investors (not potential investors) are considered to be users of the financial
statements.
Answer: False
Bloomcode: Knowledge
Difficulty: Easy
Learning Objective: Explain why there is a demand for audit and assurance services. Section
Reference: 1.2 Demand for audit and assurance services
CPA Competency: Audit and Assurance AACSB:
Analytic
2. Insurance hypothesis is a means whereby the investor can guarantee the success of their
investment.
Answer: False
Bloomcode: Comprehension
Difficulty: Easy
Learning Objective: Explain why there is a demand for audit and assurance services. Section
Reference: 1.2 Demand for audit and assurance services
CPA Competency: Audit and Assurance AACSB:
Analytic
3. A compliance audit involves gathering evidence to ascertain whether the person or entity under
review has followed the rules, policies, procedures, laws, and regulations with which they must
conform.
Answer: True
Bloomcode: Comprehension
Difficulty: Easy
Learning Objective: Differentiate between types of assurance services. Section
Reference: 1.3 Different assurance services
CPA Competency: Audit and Assurance AACSB:
Analytic
4. An operational audit is an example of a compliance audit.
Answer: False
Bloomcode: Knowledge
Difficulty: Easy
Learning Objective: Differentiate between types of assurance services. Section
Reference: 1.3 Different assurance services
CPA Competency: Audit and Assurance AACSB:
Analytic
