AUDIT EXAM SCRIPT WITH VERIFIED
QUESTIONS AND ANSWERS
●● An investor is reading the financial statements of the Stankey
Corporation and observes that the statements are accompanied by an
auditor's unqualified report. From this, the investor may conclude that
A. Any disputes over significant accounting issues have been settled to
the auditor's satisfaction.
B. The auditor is satisfied that Stankey will be highly profitable in the
future.
C. The auditor has determined that Stankey's management is not
qualified to lead the company.
D. The auditor is certain that Stankey's financial statements have been
prepared accurately and that all account balances are precisely correct.
Answer: A
●● Which of the following is not a concept that is included in the scope
paragraph of the auditor's report?
A. The audit was conducted in accordance with applicable auditing
standards.
B. An audit involves examining items on a test (i.e. sampling) basis.
, C. The audit was planned and performed to obtain reasonable, rather
than absolute, assurance.
D. The conformance of the financial statements with generally accepted
accounting principles.
Answer: D
●● Which one of the following statements best describes the concept of
materiality?
A. Materiality is largely a matter of professional judgment.
B. Materiality depends only on the dollar amount of an item relative to
other items in the financial statements.
C. Materiality is determined by reference to specific quantitative
guidelines established by the AICPA.
D. Materiality depends on the nature of an item but not on the dollar
amount of the item.
Answer: A
●● Assurance services may improve all of the following except
A. Credibility.
B. Reliability.
C. Periodicity.
D. Relevance.
,Answer: C
●● In the context of agency theory, information asymmetry refers to the
idea that
A. Management has more information about the entity's true financial
position than do the absentee owners (i.e. stockholders).
B. Management likely will not act in the best interests of the absentee
owners.
C. Information can vary in its relevance.
D. Information can vary in its reliability.
Answer: A
●● The auditor's report is generally addressed to the
A. Chief operating officer.
B. Securities and Exchange Commission.
C. Chief financial officer.
D. Stockholders of the company.
Answer: D
●● An auditor who accepts an audit engagement and does not possess
expertise with respect to the business entity's industry, should
, A. First inform management that an unqualified opinion cannot be
issued.
B. Refer a substantial portion of the audit to another CPA, who will act
as the principal auditor.
C. Obtain a knowledge of matters that relate to the nature of the entity's
business.
D. Engage financial experts familiar with the nature of the business
entity.
Answer: C
●● Which of the following is true with respect to the auditor's report?
A. The report indicates that the company's financial statements were
audited in accordance with applicable auditing standards.
B. The report indicates that the company's financial statements were
audited in accordance with statements issued by the FASB.
C. The report indicates that the company's financial statements were
audited in accordance with the auditor's best judgment.
D. The report indicates that the company's financial statements were
audited in accordance with generally accepted accounting standards.
Answer: A
QUESTIONS AND ANSWERS
●● An investor is reading the financial statements of the Stankey
Corporation and observes that the statements are accompanied by an
auditor's unqualified report. From this, the investor may conclude that
A. Any disputes over significant accounting issues have been settled to
the auditor's satisfaction.
B. The auditor is satisfied that Stankey will be highly profitable in the
future.
C. The auditor has determined that Stankey's management is not
qualified to lead the company.
D. The auditor is certain that Stankey's financial statements have been
prepared accurately and that all account balances are precisely correct.
Answer: A
●● Which of the following is not a concept that is included in the scope
paragraph of the auditor's report?
A. The audit was conducted in accordance with applicable auditing
standards.
B. An audit involves examining items on a test (i.e. sampling) basis.
, C. The audit was planned and performed to obtain reasonable, rather
than absolute, assurance.
D. The conformance of the financial statements with generally accepted
accounting principles.
Answer: D
●● Which one of the following statements best describes the concept of
materiality?
A. Materiality is largely a matter of professional judgment.
B. Materiality depends only on the dollar amount of an item relative to
other items in the financial statements.
C. Materiality is determined by reference to specific quantitative
guidelines established by the AICPA.
D. Materiality depends on the nature of an item but not on the dollar
amount of the item.
Answer: A
●● Assurance services may improve all of the following except
A. Credibility.
B. Reliability.
C. Periodicity.
D. Relevance.
,Answer: C
●● In the context of agency theory, information asymmetry refers to the
idea that
A. Management has more information about the entity's true financial
position than do the absentee owners (i.e. stockholders).
B. Management likely will not act in the best interests of the absentee
owners.
C. Information can vary in its relevance.
D. Information can vary in its reliability.
Answer: A
●● The auditor's report is generally addressed to the
A. Chief operating officer.
B. Securities and Exchange Commission.
C. Chief financial officer.
D. Stockholders of the company.
Answer: D
●● An auditor who accepts an audit engagement and does not possess
expertise with respect to the business entity's industry, should
, A. First inform management that an unqualified opinion cannot be
issued.
B. Refer a substantial portion of the audit to another CPA, who will act
as the principal auditor.
C. Obtain a knowledge of matters that relate to the nature of the entity's
business.
D. Engage financial experts familiar with the nature of the business
entity.
Answer: C
●● Which of the following is true with respect to the auditor's report?
A. The report indicates that the company's financial statements were
audited in accordance with applicable auditing standards.
B. The report indicates that the company's financial statements were
audited in accordance with statements issued by the FASB.
C. The report indicates that the company's financial statements were
audited in accordance with the auditor's best judgment.
D. The report indicates that the company's financial statements were
audited in accordance with generally accepted accounting standards.
Answer: A
