Chapter 01
An Introduction to Assurance and Financial Statement Auditing
Multiple Choice Questions
1. The basic purpose of a financial statement audit is to
A. Detect fraud
B. Examine individual transactions so that the auditor may certify as to their validity
C. Determine whether the client's financial statements are fairly stated
D. Assure the consistent application of correct accounting procedures
AACSB: Communications
AICPA BB: Critical Thinking
AICPA FN: Reporting
Difficulty: Easy
Learning Objective: 4
Learning Objective: 5
2. Which of the following is not considered to be value that is added to information reported
on by assurance services?
A. Relevance
B. Timeliness
C. Periodicity
D. Reliability
AACSB: Communications
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Easy
Learning Objective: 4
,3. Evidence is reliable if it
A. Signals the true state of an assertion
B. Applies to the period being audited
C. Relates to the audit assertion being tested
D. Corroborates management's assertions
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Difficulty: Easy
Learning Objective: 5
4. Which of the following best describes the concept of audit risk?
A. The risk of the auditor being sued because of association with an audit client
B. The risk that the auditor will provide an unqualified opinion on materially misstated
financial statements
C. The overall risk that a material misstatement exists in the financial statements
D. The risk that auditors use audit procedures that are inappropriate
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Risk Analysis
Difficulty: Easy
Learning Objective: 5
,5. An auditor who accepts an audit engagement and does not possess expertise with respect
to the business entity's industry, should
A. Engage financial experts familiar with the nature of the business entity
B. Obtain a knowledge of matters that relate to the nature of the entity's business
C. Refer a substantial portion of the audit to another CPA, who will act as the principal
auditor
D. First inform management that an unqualified opinion can not be issued
AACSB: Ethics
AICPA BB: Industry
AICPA FN: Decision Making
Difficulty: Easy
Learning Objective: 7
Learning Objective: 9
, 6. For publicly-held companies, the external auditor is required to audit which of the
following:
A. Budgetary information
B. The company's internal controls
C. Management forecasts
D. Interim financial statements
AACSB: Communications
AICPA BB: Legal
AICPA FN: Reporting
Difficulty: Easy
Learning Objective: 7
7. During the initial planning phase of an audit, a CPA most likely would
A. Identify specific internal control activities that are likely to prevent fraud
B. Evaluate the reasonableness of the client's accounting estimates
C. Discuss the timing of the audit procedures with the client's management
D. Inquire of the client's attorney as to whether any unrecorded claims are probable or
asserted
AACSB: Communications
AICPA BB: Resource Management
AICPA FN: Decision Making
Difficulty: Easy
Learning Objective: 7
An Introduction to Assurance and Financial Statement Auditing
Multiple Choice Questions
1. The basic purpose of a financial statement audit is to
A. Detect fraud
B. Examine individual transactions so that the auditor may certify as to their validity
C. Determine whether the client's financial statements are fairly stated
D. Assure the consistent application of correct accounting procedures
AACSB: Communications
AICPA BB: Critical Thinking
AICPA FN: Reporting
Difficulty: Easy
Learning Objective: 4
Learning Objective: 5
2. Which of the following is not considered to be value that is added to information reported
on by assurance services?
A. Relevance
B. Timeliness
C. Periodicity
D. Reliability
AACSB: Communications
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Easy
Learning Objective: 4
,3. Evidence is reliable if it
A. Signals the true state of an assertion
B. Applies to the period being audited
C. Relates to the audit assertion being tested
D. Corroborates management's assertions
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Difficulty: Easy
Learning Objective: 5
4. Which of the following best describes the concept of audit risk?
A. The risk of the auditor being sued because of association with an audit client
B. The risk that the auditor will provide an unqualified opinion on materially misstated
financial statements
C. The overall risk that a material misstatement exists in the financial statements
D. The risk that auditors use audit procedures that are inappropriate
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Risk Analysis
Difficulty: Easy
Learning Objective: 5
,5. An auditor who accepts an audit engagement and does not possess expertise with respect
to the business entity's industry, should
A. Engage financial experts familiar with the nature of the business entity
B. Obtain a knowledge of matters that relate to the nature of the entity's business
C. Refer a substantial portion of the audit to another CPA, who will act as the principal
auditor
D. First inform management that an unqualified opinion can not be issued
AACSB: Ethics
AICPA BB: Industry
AICPA FN: Decision Making
Difficulty: Easy
Learning Objective: 7
Learning Objective: 9
, 6. For publicly-held companies, the external auditor is required to audit which of the
following:
A. Budgetary information
B. The company's internal controls
C. Management forecasts
D. Interim financial statements
AACSB: Communications
AICPA BB: Legal
AICPA FN: Reporting
Difficulty: Easy
Learning Objective: 7
7. During the initial planning phase of an audit, a CPA most likely would
A. Identify specific internal control activities that are likely to prevent fraud
B. Evaluate the reasonableness of the client's accounting estimates
C. Discuss the timing of the audit procedures with the client's management
D. Inquire of the client's attorney as to whether any unrecorded claims are probable or
asserted
AACSB: Communications
AICPA BB: Resource Management
AICPA FN: Decision Making
Difficulty: Easy
Learning Objective: 7
