Test Bank Auditing & Assurance Services 4th Canadian Edition William Messier
Chapter 01 4ce - Messier
1) Auditing focuses on rules, techniques, and computations required to prepare and analyze
financial information.
⊚ true
⊚ false
2) Decision makers demand reliable information that is provided by accountants.
⊚ true
⊚ false
⊚ true
i a
3) Information asymmetry seldom occurs.
⊚ false
t h
4) Conflicts of interest often occur between absentee owners and managers.
⊚ true
⊚ false b u
5) Auditing services and attest services are the same.
⊚ true
⊚ false
m
6) Auditing is a type of attest service.
⊚ true
⊚ false
7) Testing all transactions that occurred during the period is cost prohibitive.
⊚ true
⊚ false
1
,8) Why do auditors generally use a sampling approach to evidence gathering?
A) Auditors are experts and do not need to look at much to know whether the financial
statements are correct or not.
B) Auditors must balance the cost of the audit with the need for precision.
C) Auditors must limit their exposure to their auditee to maintain independence.
D) The auditor's relationship with the auditee is generally adversarial, so the auditor will
not have access to all of the financial information of the company.
9) Which of the following statements best describes a relationship between sample size and
other elements of auditing?
A) If materiality increases, so will the sample size.
a
B) If the desired level of assurance increases, sample sizes can be smaller.
C) If materiality decreases, sample size will need to increase.
i
D) There is no relationship between sample size and materiality or the desired level of
h
assurance. t
10) Which of the following statements about the study of auditing is NOT true?
u
A) The study of auditing can be valuable to future accountants and business decision
makers whether or not they plan to become auditors.
b
B) The study of auditing focuses on learning the analytical and logical skills necessary to
evaluate the relevance and reliability of information.
required to analyze financial statements.
m
C) The study of auditing focuses on learning the rules, techniques, and computations
D) The study of auditing begins with the understanding of a coherent logical framework
and techniques useful for gathering and analyzing evidence about others' assertions.
11) The basic definition of auditing states it is a process to:
A) detect fraud.
B) examine individual transactions so that the auditor may certify as to their validity.
C) objectively obtain and evaluate evidence regarding assertions.
D) assure the consistent application of correct accounting procedures.
2
,12) Assurance services may improve all of the following except:
A) relevance.
B) credibility.
C) periodicity.
D) reliability.
13) Evidence is most reliable if it:
A) signals the true state of a management assertion.
B) applies to the period being audited.
C) relates to the audit assertion being tested.
D) is sufficient to justify a conclusion.
i a
14) Which of the following best describes the concept of audit risk?
h
A) The risk of the auditor being sued because of association with an auditee.
B) The risk that the auditor will provide a "clean" opinion on financial statements that
are, in fact, materially misstated.
t
C) The overall risk that a material misstatement exists in the financial statements.
u
D) The risk that auditors use audit procedures that are inappropriate.
b
15) An auditor who accepts an audit engagement and does not possess expertise with respect to
the business entity's industry, should: m
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 cannot be issued.
16) During the client acceptance/continuance 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 company's accounting estimates.
C) evaluate the integrity of management.
D) inquire of the company's attorney as to whether any unrecorded claims are probable
or asserted.
3
, 17) In the context of agency relationship, information asymmetry refers to the idea that:
A) information can vary in its reliability.
B) information can vary in its relevance.
C) management has more information about the entity's true financial position than do
the absentee owners (i.e. stockholders).
D) management likely will not act in the best interests of the absentee owners.
18) Which of the following best describes why an independent auditor is asked to express an
opinion on the fair presentation of financial statements?
A) It is difficult to prepare financial statements that fairly present a company's financial
position and changes in cash flows without the expertise of an independent auditor.
a
B) It is management's responsibility to seek available independent aid in the appraisal of
the financial information shown in its financial statements.
i
C) The opinion of an independent party is needed because a company is not likely to be
h
considered objective with respect to its own financial statements.
D) It is a customary courtesy that all stockholders of a company receive an independent
report on management's stewardship in managing the affairs of the business.
t u
19) Which of the following best describes the fundamental, underlying reason for why there is
b
demand for an independent auditor to report on financial statements?
A) A management fraud may exist and it is more likely to be detected by auditors if they
are independent. m
B) Different interests may exist between the company preparing the statements and the
parties using the statements.
C) A misstatement of account balances may exist and it is the independent auditor's
responsibility to ensure that financial statements are not misstated.
D) A poorly designed internal control system may be in place.
20) Which of the following best describes why publicly-traded corporations follow the practice
of having the external auditor appointed by the board of directors or elected by the
stockholders?
A) To promote an adversarial relationship between the auditor and the corporation's
management.
B) To enhance auditor independence from the management of the corporation.
C) To encourage a policy of rotation of the independent auditors.
D) To give management more leverage over the auditor's decisions.
4
Chapter 01 4ce - Messier
1) Auditing focuses on rules, techniques, and computations required to prepare and analyze
financial information.
⊚ true
⊚ false
2) Decision makers demand reliable information that is provided by accountants.
⊚ true
⊚ false
⊚ true
i a
3) Information asymmetry seldom occurs.
⊚ false
t h
4) Conflicts of interest often occur between absentee owners and managers.
⊚ true
⊚ false b u
5) Auditing services and attest services are the same.
⊚ true
⊚ false
m
6) Auditing is a type of attest service.
⊚ true
⊚ false
7) Testing all transactions that occurred during the period is cost prohibitive.
⊚ true
⊚ false
1
,8) Why do auditors generally use a sampling approach to evidence gathering?
A) Auditors are experts and do not need to look at much to know whether the financial
statements are correct or not.
B) Auditors must balance the cost of the audit with the need for precision.
C) Auditors must limit their exposure to their auditee to maintain independence.
D) The auditor's relationship with the auditee is generally adversarial, so the auditor will
not have access to all of the financial information of the company.
9) Which of the following statements best describes a relationship between sample size and
other elements of auditing?
A) If materiality increases, so will the sample size.
a
B) If the desired level of assurance increases, sample sizes can be smaller.
C) If materiality decreases, sample size will need to increase.
i
D) There is no relationship between sample size and materiality or the desired level of
h
assurance. t
10) Which of the following statements about the study of auditing is NOT true?
u
A) The study of auditing can be valuable to future accountants and business decision
makers whether or not they plan to become auditors.
b
B) The study of auditing focuses on learning the analytical and logical skills necessary to
evaluate the relevance and reliability of information.
required to analyze financial statements.
m
C) The study of auditing focuses on learning the rules, techniques, and computations
D) The study of auditing begins with the understanding of a coherent logical framework
and techniques useful for gathering and analyzing evidence about others' assertions.
11) The basic definition of auditing states it is a process to:
A) detect fraud.
B) examine individual transactions so that the auditor may certify as to their validity.
C) objectively obtain and evaluate evidence regarding assertions.
D) assure the consistent application of correct accounting procedures.
2
,12) Assurance services may improve all of the following except:
A) relevance.
B) credibility.
C) periodicity.
D) reliability.
13) Evidence is most reliable if it:
A) signals the true state of a management assertion.
B) applies to the period being audited.
C) relates to the audit assertion being tested.
D) is sufficient to justify a conclusion.
i a
14) Which of the following best describes the concept of audit risk?
h
A) The risk of the auditor being sued because of association with an auditee.
B) The risk that the auditor will provide a "clean" opinion on financial statements that
are, in fact, materially misstated.
t
C) The overall risk that a material misstatement exists in the financial statements.
u
D) The risk that auditors use audit procedures that are inappropriate.
b
15) An auditor who accepts an audit engagement and does not possess expertise with respect to
the business entity's industry, should: m
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 cannot be issued.
16) During the client acceptance/continuance 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 company's accounting estimates.
C) evaluate the integrity of management.
D) inquire of the company's attorney as to whether any unrecorded claims are probable
or asserted.
3
, 17) In the context of agency relationship, information asymmetry refers to the idea that:
A) information can vary in its reliability.
B) information can vary in its relevance.
C) management has more information about the entity's true financial position than do
the absentee owners (i.e. stockholders).
D) management likely will not act in the best interests of the absentee owners.
18) Which of the following best describes why an independent auditor is asked to express an
opinion on the fair presentation of financial statements?
A) It is difficult to prepare financial statements that fairly present a company's financial
position and changes in cash flows without the expertise of an independent auditor.
a
B) It is management's responsibility to seek available independent aid in the appraisal of
the financial information shown in its financial statements.
i
C) The opinion of an independent party is needed because a company is not likely to be
h
considered objective with respect to its own financial statements.
D) It is a customary courtesy that all stockholders of a company receive an independent
report on management's stewardship in managing the affairs of the business.
t u
19) Which of the following best describes the fundamental, underlying reason for why there is
b
demand for an independent auditor to report on financial statements?
A) A management fraud may exist and it is more likely to be detected by auditors if they
are independent. m
B) Different interests may exist between the company preparing the statements and the
parties using the statements.
C) A misstatement of account balances may exist and it is the independent auditor's
responsibility to ensure that financial statements are not misstated.
D) A poorly designed internal control system may be in place.
20) Which of the following best describes why publicly-traded corporations follow the practice
of having the external auditor appointed by the board of directors or elected by the
stockholders?
A) To promote an adversarial relationship between the auditor and the corporation's
management.
B) To enhance auditor independence from the management of the corporation.
C) To encourage a policy of rotation of the independent auditors.
D) To give management more leverage over the auditor's decisions.
4
