TEST BANK
Test Bank Auditing and Assurance Services A
Systematic Approach 12th Edition by William F.
Messier Jr., Steven M. Glover, Douglas F. Prawitt with
Solution Updated 2025/2026
CHAPTER 1: INTRODUCTION TO ASSURANCE AND FINANCIAL STATEMENT AUDITING
Question 1
Which of the following best describes the relationship between assurance services, attestation
services, and auditing?
A) Attestation services are broader in scope than assurance services.
B) Auditing is a specific type of attestation service, which is a type of assurance service.
C) Assurance services require a written assertion by management, whereas auditing does not.
D) Auditing and attestation are identical terms used interchangeably in public practice.
Answer: B
Rationale: Auditing is a subset of attestation, which is a subset of assurance. Assurance services
include any independent professional service that improves the quality of information for decision-
makers. Attestation involves issuing a report on a specific subject matter, and auditing specifically
focuses on financial statements .
Question 2
The demand for independent audits of financial statements primarily arises from which of the
following economic conditions?
A) The strict mandate by the Internal Revenue Service (IRS).
B) Information asymmetry and conflicts of interest between managers and remote stakeholders.
C) The requirement by commercial banks for all businesses seeking lines of credit.
D) The need to ensure that a company remains profitable over the next fiscal cycle.
Answer: B
Rationale: Information asymmetry exists because managers have more direct access to a company's
financial operations than distant shareholders or creditors. An independent audit bridges this gap
and reduces information risk, mitigating potential conflicts of interest inherent in the agency
relationship .
Question 3
Why do auditors often 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.
B) Auditors must balance the cost of the audit with the need for precision.
, TEST BANK
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 financial information.
Answer: B
Rationale: Testing all transactions that occurred during the period is cost-prohibitive. Auditors must
balance the cost of the audit with the need for precision and reasonable assurance .
Question 4
Which of the following statements about the study of auditing is NOT true?
A) The study of auditing can be valuable to future accountants and business decision makers
whether or not they plan to become auditors.
B) The study of auditing focuses on learning the analytical and logical skills necessary to evaluate the
relevance and reliability of information.
C) The study of auditing focuses on learning the rules, techniques, and computations required to
analyze financial statements.
D) The study of auditing begins with the understanding of a coherent logical framework and
techniques useful for gathering and analyzing evidence.
Answer: C
Rationale: The study of auditing is more conceptual in nature compared to other accounting
courses. Rather than focusing on learning the rules, techniques, and computations required to
prepare financial statements, auditing emphasizes learning a framework of analytical and logical
skills. This framework enables auditors to evaluate the relevance and reliability of systems and
processes responsible for financial information .
Question 5
The basic definition of auditing essentially indicates that, overall, auditing 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 made by another party.
D) assure the consistent application of correct accounting procedures.
Answer: C
Rationale: Auditing (broadly defined) is a systematic process of objectively obtaining and evaluating
evidence regarding assertions about economic actions and events to ascertain the degree of
correspondence between those assertions and established criteria, and communicating the results
to interested users .
Question 6
Assurance services may improve all of the following except:
, TEST BANK
A) relevance.
B) credibility.
C) periodicity.
D) reliability.
Answer: C
Rationale: Assurance services improve the quality of information, or its context, for decision makers.
They enhance relevance, credibility, and reliability of information, but periodicity (the timing of
reporting) is not an attribute that assurance services are designed to improve .
Question 7
Evidence is 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.
Answer: A
Rationale: Evidence is reliable if it signals the true state of a management assertion. Reliability refers
to the quality of evidence—whether it can be depended upon to faithfully represent the economic
reality it purports to measure .
Question 8
Which of the following best describes the concept of audit risk?
A) The risk of the auditor being sued because of association with an auditee.
B) The risk that the auditor will provide an inappropriate opinion on financial statements that are, in
fact, materially misstated.
C) The overall risk that a material misstatement exists in the financial statements.
D) The risk that auditors use audit procedures that are inappropriate.
Answer: B
Rationale: Audit risk is the risk that the auditor will provide an inappropriate opinion on financial
statements that are, in fact, materially misstated. It is a fundamental concept that auditors must
manage throughout the engagement .
Question 9
If the results of tests of controls support the design and operations of controls as expected, the
auditor uses ________ control risk as the preliminary assessment.
A) a lower
B) the same
C) a higher
D) either a lower or higher
, TEST BANK
Answer: A
Rationale: When tests of controls confirm that controls are operating effectively, the auditor can
assess control risk at a lower level, which allows for reduced substantive testing .
Question 10
An auditor accepts an audit engagement and does not possess expertise with respect to the business
entity's industry. The auditor should:
A) engage financial experts familiar with the nature of the business entity.
B) obtain knowledge of matters that relate to the nature of the entity's business and the industry in
which it operates.
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.
Answer: B
Rationale: Auditors are required to obtain sufficient knowledge of the client's business and industry
to perform the audit. This is an essential part of audit planning and risk assessment .
CHAPTER 2: THE FINANCIAL STATEMENT AUDITING ENVIRONMENT
Question 11
Independence is a bedrock principle for auditors because:
A) it is required by the AICPA Code of Professional Conduct.
B) if an auditor is not independent, users may lose confidence in the auditor's ability to report
objectively.
C) it allows auditors to charge higher fees.
D) it eliminates the need for professional skepticism.
Answer: B
Rationale: Independence is fundamental to audit credibility. If users know the auditor is not
independent, they will not trust the auditor's work, and the auditor's report loses its value .
Question 12
The agency relationship between an owner and manager produces a natural conflict of interest
because of:
A) differences in the two parties' goals and information asymmetry.
B) the requirement for external audits.
C) government regulations.
D) the manager's lack of accounting knowledge.
Answer: A
Rationale: The manager likely has different goals than the owner, and generally has more
information about the "true" financial position and results of operations than the absentee owner
Test Bank Auditing and Assurance Services A
Systematic Approach 12th Edition by William F.
Messier Jr., Steven M. Glover, Douglas F. Prawitt with
Solution Updated 2025/2026
CHAPTER 1: INTRODUCTION TO ASSURANCE AND FINANCIAL STATEMENT AUDITING
Question 1
Which of the following best describes the relationship between assurance services, attestation
services, and auditing?
A) Attestation services are broader in scope than assurance services.
B) Auditing is a specific type of attestation service, which is a type of assurance service.
C) Assurance services require a written assertion by management, whereas auditing does not.
D) Auditing and attestation are identical terms used interchangeably in public practice.
Answer: B
Rationale: Auditing is a subset of attestation, which is a subset of assurance. Assurance services
include any independent professional service that improves the quality of information for decision-
makers. Attestation involves issuing a report on a specific subject matter, and auditing specifically
focuses on financial statements .
Question 2
The demand for independent audits of financial statements primarily arises from which of the
following economic conditions?
A) The strict mandate by the Internal Revenue Service (IRS).
B) Information asymmetry and conflicts of interest between managers and remote stakeholders.
C) The requirement by commercial banks for all businesses seeking lines of credit.
D) The need to ensure that a company remains profitable over the next fiscal cycle.
Answer: B
Rationale: Information asymmetry exists because managers have more direct access to a company's
financial operations than distant shareholders or creditors. An independent audit bridges this gap
and reduces information risk, mitigating potential conflicts of interest inherent in the agency
relationship .
Question 3
Why do auditors often 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.
B) Auditors must balance the cost of the audit with the need for precision.
, TEST BANK
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 financial information.
Answer: B
Rationale: Testing all transactions that occurred during the period is cost-prohibitive. Auditors must
balance the cost of the audit with the need for precision and reasonable assurance .
Question 4
Which of the following statements about the study of auditing is NOT true?
A) The study of auditing can be valuable to future accountants and business decision makers
whether or not they plan to become auditors.
B) The study of auditing focuses on learning the analytical and logical skills necessary to evaluate the
relevance and reliability of information.
C) The study of auditing focuses on learning the rules, techniques, and computations required to
analyze financial statements.
D) The study of auditing begins with the understanding of a coherent logical framework and
techniques useful for gathering and analyzing evidence.
Answer: C
Rationale: The study of auditing is more conceptual in nature compared to other accounting
courses. Rather than focusing on learning the rules, techniques, and computations required to
prepare financial statements, auditing emphasizes learning a framework of analytical and logical
skills. This framework enables auditors to evaluate the relevance and reliability of systems and
processes responsible for financial information .
Question 5
The basic definition of auditing essentially indicates that, overall, auditing 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 made by another party.
D) assure the consistent application of correct accounting procedures.
Answer: C
Rationale: Auditing (broadly defined) is a systematic process of objectively obtaining and evaluating
evidence regarding assertions about economic actions and events to ascertain the degree of
correspondence between those assertions and established criteria, and communicating the results
to interested users .
Question 6
Assurance services may improve all of the following except:
, TEST BANK
A) relevance.
B) credibility.
C) periodicity.
D) reliability.
Answer: C
Rationale: Assurance services improve the quality of information, or its context, for decision makers.
They enhance relevance, credibility, and reliability of information, but periodicity (the timing of
reporting) is not an attribute that assurance services are designed to improve .
Question 7
Evidence is 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.
Answer: A
Rationale: Evidence is reliable if it signals the true state of a management assertion. Reliability refers
to the quality of evidence—whether it can be depended upon to faithfully represent the economic
reality it purports to measure .
Question 8
Which of the following best describes the concept of audit risk?
A) The risk of the auditor being sued because of association with an auditee.
B) The risk that the auditor will provide an inappropriate opinion on financial statements that are, in
fact, materially misstated.
C) The overall risk that a material misstatement exists in the financial statements.
D) The risk that auditors use audit procedures that are inappropriate.
Answer: B
Rationale: Audit risk is the risk that the auditor will provide an inappropriate opinion on financial
statements that are, in fact, materially misstated. It is a fundamental concept that auditors must
manage throughout the engagement .
Question 9
If the results of tests of controls support the design and operations of controls as expected, the
auditor uses ________ control risk as the preliminary assessment.
A) a lower
B) the same
C) a higher
D) either a lower or higher
, TEST BANK
Answer: A
Rationale: When tests of controls confirm that controls are operating effectively, the auditor can
assess control risk at a lower level, which allows for reduced substantive testing .
Question 10
An auditor accepts an audit engagement and does not possess expertise with respect to the business
entity's industry. The auditor should:
A) engage financial experts familiar with the nature of the business entity.
B) obtain knowledge of matters that relate to the nature of the entity's business and the industry in
which it operates.
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.
Answer: B
Rationale: Auditors are required to obtain sufficient knowledge of the client's business and industry
to perform the audit. This is an essential part of audit planning and risk assessment .
CHAPTER 2: THE FINANCIAL STATEMENT AUDITING ENVIRONMENT
Question 11
Independence is a bedrock principle for auditors because:
A) it is required by the AICPA Code of Professional Conduct.
B) if an auditor is not independent, users may lose confidence in the auditor's ability to report
objectively.
C) it allows auditors to charge higher fees.
D) it eliminates the need for professional skepticism.
Answer: B
Rationale: Independence is fundamental to audit credibility. If users know the auditor is not
independent, they will not trust the auditor's work, and the auditor's report loses its value .
Question 12
The agency relationship between an owner and manager produces a natural conflict of interest
because of:
A) differences in the two parties' goals and information asymmetry.
B) the requirement for external audits.
C) government regulations.
D) the manager's lack of accounting knowledge.
Answer: A
Rationale: The manager likely has different goals than the owner, and generally has more
information about the "true" financial position and results of operations than the absentee owner
