AC 432 EXAM 1 (AL CH. 1-5,7,15) UPDATED ACTUAL
QUESTIONS AND CORRECT ANSWERS
Question:
1. Q1.1:
Which statement below best describes the relationships
between assurance, attestation, and audit?
A: Attestation is a type of assurance service.
B: Attestation services include both audit and assurance
services.
C: Assurance is a type of attestation service.
D: Attestation services are a type of audit service.
Answer:
A: Attestation is a type of assurance service.
Question:
2. Q 1.2:
When a CPA is hired to report on the integrity of financial
statements, which may include financial forecasts or
reports on financial reporting processes, it is considered
a(an)
A: integrity review.
B: audit service.
C: attestation service.
D: assurance service.
Answer:
C: attestation service.
Question:
3. Q 1.3:
An engagement performed by a practitioner to provide
limited assurance that financial statements need no
material modifications is BEST described as a (an)
A: review engagement.
B: audit engagement.
C: compilation engagement.
D: assurance engagement.
Answer:
A: review engagement.
,Question:
4. Q 1.4:
All of the following are limitations of an audit EXCEPT
A: Auditors may not have access to all relevant
information.
B: Samples are representative of all items available for
testing.
C: Judgment is often required when arriving at
accounting estimates or determining accounting
methods.
D: Fraud perpetrators often conceal evidence.
Answer:
B: Samples are representative of all items available for testing.
Question:
5. Q 1.5:
Aarav is an employee of HLC Building, Co. He is currently
evaluating and improving risk management for the
construction division. Which type of audit is Aarav most
likely working on?
A: Compliance audit
B: Financial statement audit
C: Operational audit
D: Internal audit
Answer:
D: Internal audit
Question:
6. Q 1.6:
Which of the following statements is true regarding the
concept of materiality?
A: Auditors must focus on finding all misstatements in
financial statements.
B: Materiality is always based on quantitative factors, not
qualitative factors.
C: A lower level of materiality assessed by the auditor,
means a smaller likelihood that a misstatement may
potentially impact or change the decision-making
process.
D: Materiality refers to the content of any audit evidence
gathered.
Answer:
C: A lower level of materiality assessed by the auditor, means a smaller likelihood
that a misstatement may potentially impact or change the decision-making
process.
,Question:
7. Q 1.7:
Merriwether Corp. is seeking a line of credit for its
operations and the bank has requested audited financial
statements. The bank wants to hire an independent
auditor to conduct the audit, but Merriwether's CFO
knows a local accountant that she would like to use.
Which of the following describes the best reasoning in
selecting the right individual?
A: An independent auditor will be certain to conduct an
audit that is in Merriwether's best interests.
B: An auditor will be most interested in helping
Merriwether get the loan they are requesting.
C: An auditor has the training and detailed knowledge to
understand technical accounting and disclosure issues
necessary to evaluate Merriwether's financial statements.
D: The local accountant is familiar with the company and
the area and is in the best position to fairly assess
Merriwether's financial statements.
Answer:
C: An auditor has the training and detailed knowledge to understand technical
accounting and disclosure issues necessary to evaluate Merriwether's financial
statements.
Question:
8. Q 1.8:
Patrick Brown is concerned that management at his
largest customer is under immense pressure to meet
operating goals. Patrick has requested that his largest
customer provide him with audited financial statements to
help assess their creditworthiness. Which of the following
sources of demand for audit and assurance services is
Patrick is most likely concerned with?
A: Reliability
B: Complexity
C: Competing incentives
D: Remoteness
Answer:
C: Competing incentives
, Question:
9. Q 1.9:
Li Na is concerned about the significant and unusual
estimates used by one of her lending clients. Li has
requested that her client provide her with audited
financial statements to help assess their creditworthiness.
Which of the following sources of demand for audit and
assurance services is Li most likely concerned with?
A: Reliability
B: Complexity
C: Competing incentives
D: Remoteness
Answer:
B: Complexity
Question:
10. Q 1.10:
Which of the following statements is most correct
regarding the audit opinion?
A: The audit opinion is not a reflection of how
management is performing.
B: The audit opinion predicts the future success of the
company.
C: The audit opinion certifies the absolute accuracy of the
financial statements.
D: The audit opinion reports whether the financial
statements are fairly presented in accordance with
auditing standards.
Answer:
A: The audit opinion is not a reflection of how management is performing.
QUESTIONS AND CORRECT ANSWERS
Question:
1. Q1.1:
Which statement below best describes the relationships
between assurance, attestation, and audit?
A: Attestation is a type of assurance service.
B: Attestation services include both audit and assurance
services.
C: Assurance is a type of attestation service.
D: Attestation services are a type of audit service.
Answer:
A: Attestation is a type of assurance service.
Question:
2. Q 1.2:
When a CPA is hired to report on the integrity of financial
statements, which may include financial forecasts or
reports on financial reporting processes, it is considered
a(an)
A: integrity review.
B: audit service.
C: attestation service.
D: assurance service.
Answer:
C: attestation service.
Question:
3. Q 1.3:
An engagement performed by a practitioner to provide
limited assurance that financial statements need no
material modifications is BEST described as a (an)
A: review engagement.
B: audit engagement.
C: compilation engagement.
D: assurance engagement.
Answer:
A: review engagement.
,Question:
4. Q 1.4:
All of the following are limitations of an audit EXCEPT
A: Auditors may not have access to all relevant
information.
B: Samples are representative of all items available for
testing.
C: Judgment is often required when arriving at
accounting estimates or determining accounting
methods.
D: Fraud perpetrators often conceal evidence.
Answer:
B: Samples are representative of all items available for testing.
Question:
5. Q 1.5:
Aarav is an employee of HLC Building, Co. He is currently
evaluating and improving risk management for the
construction division. Which type of audit is Aarav most
likely working on?
A: Compliance audit
B: Financial statement audit
C: Operational audit
D: Internal audit
Answer:
D: Internal audit
Question:
6. Q 1.6:
Which of the following statements is true regarding the
concept of materiality?
A: Auditors must focus on finding all misstatements in
financial statements.
B: Materiality is always based on quantitative factors, not
qualitative factors.
C: A lower level of materiality assessed by the auditor,
means a smaller likelihood that a misstatement may
potentially impact or change the decision-making
process.
D: Materiality refers to the content of any audit evidence
gathered.
Answer:
C: A lower level of materiality assessed by the auditor, means a smaller likelihood
that a misstatement may potentially impact or change the decision-making
process.
,Question:
7. Q 1.7:
Merriwether Corp. is seeking a line of credit for its
operations and the bank has requested audited financial
statements. The bank wants to hire an independent
auditor to conduct the audit, but Merriwether's CFO
knows a local accountant that she would like to use.
Which of the following describes the best reasoning in
selecting the right individual?
A: An independent auditor will be certain to conduct an
audit that is in Merriwether's best interests.
B: An auditor will be most interested in helping
Merriwether get the loan they are requesting.
C: An auditor has the training and detailed knowledge to
understand technical accounting and disclosure issues
necessary to evaluate Merriwether's financial statements.
D: The local accountant is familiar with the company and
the area and is in the best position to fairly assess
Merriwether's financial statements.
Answer:
C: An auditor has the training and detailed knowledge to understand technical
accounting and disclosure issues necessary to evaluate Merriwether's financial
statements.
Question:
8. Q 1.8:
Patrick Brown is concerned that management at his
largest customer is under immense pressure to meet
operating goals. Patrick has requested that his largest
customer provide him with audited financial statements to
help assess their creditworthiness. Which of the following
sources of demand for audit and assurance services is
Patrick is most likely concerned with?
A: Reliability
B: Complexity
C: Competing incentives
D: Remoteness
Answer:
C: Competing incentives
, Question:
9. Q 1.9:
Li Na is concerned about the significant and unusual
estimates used by one of her lending clients. Li has
requested that her client provide her with audited
financial statements to help assess their creditworthiness.
Which of the following sources of demand for audit and
assurance services is Li most likely concerned with?
A: Reliability
B: Complexity
C: Competing incentives
D: Remoteness
Answer:
B: Complexity
Question:
10. Q 1.10:
Which of the following statements is most correct
regarding the audit opinion?
A: The audit opinion is not a reflection of how
management is performing.
B: The audit opinion predicts the future success of the
company.
C: The audit opinion certifies the absolute accuracy of the
financial statements.
D: The audit opinion reports whether the financial
statements are fairly presented in accordance with
auditing standards.
Answer:
A: The audit opinion is not a reflection of how management is performing.
