Auditing and Assurance Services An Integrated Approach 13th Edition by Arens Multiple-Choice Questions

Auditing and Assurance Services An Integrated Approach 13th Edition by Arens Multiple-Choice Questions 1. The objective of the ordinary audit of financial statements is the expression of an opinion on: easy a. the fairness of the financial statements. a b. the accuracy of the financial statements. c. the accuracy of the annual report. d. the balance sheet and income statement. 2. easy If the auditor believes that the financial statements are not fairly stated or is unable to reach an conclusion because of insufficient evidence, the auditor: c a. should withdraw from the engagement. b. should request an increase in audit fees so that more resources can be used to conduct the audit. c. has the responsibility of notifying financial statement users through the auditor’s report. d. should notify regulators of the circumstances. 3. Auditors accumulate evidence to: easy a. defend themselves in the event of a lawsuit. d b. justify the conclusions they have otherwise reached. c. satisfy the requirements of the Securities Acts of 1933 and 1934. d. enable them to reach conclusions about the fairness of the financial statements. 4. easy The responsibility for adopting sound accounting policies and maintaining adequate internal control rests with the: b a. board of directors. b. company management. c. financial statement auditor. d. company’s internal audit department. 5. easy The auditor’s best defense when material misstatements are not uncovered is to have conducted the audit: a a. in accordance with auditing standards. b. as effectively as reasonably possible. c. in a timely manner. d. only after an adequate investigation of the management team. 6. easy If management insists on financial statement disclosures that the auditor finds unacceptable, the auditor can: a Issue an adverse audit report Issue a qualified audit report a. b. c. d. Yes No Yes No Yes No No Yes 7. easy If management insists on financial statement disclosures that the auditor finds unacceptable, the auditor can do all but which of the following? b a. Issue an adverse audit report. b. Issue a disclaimer of opinion. c. Withdraw from the engagement. d. Issue a qualified audit report. 8. easy Which of the following is not one of the reasons that auditors provide only reasonable assurance on the financial statements? d a. The auditor commonly examines a sample, rather than the entire population of transactions. b. Accounting presentations contain complex estimates which involve uncertainty. c. Fraudulently prepared financial statements are often difficult to detect. d. Auditors believe that reasonable assurance is sufficient in the vast majority of cases. 9. (Public) challenging In certifying their annual financial statements, the CEO and CFO of a public company certify that the financial statements comply with the requirements of: c a. GAAP. b. the Sarbanes-Oxley Act. c. the Securities Exchange Act of 1934. d. GAAS. 10. Which of the following statements is most correct regarding errors and fraud? easy a. An error is unintentional, whereas fraud is intentional. a b. Frauds occur more often than errors in financial statements. c. Errors are always fraud and frauds are always errors. d. Auditors have more responsibility for finding fraud than errors. 11. (SOX) Which of the following statements is true of a public company’s financial statements? easy a. Sarbanes-Oxley requires the CEO only to certify the financial statements. c b. Sarbanes-Oxley requires the CFO only to certify the financial statements. c. Sarbanes-Oxley requires the CEO and CFO to certify the financial statements. d. Sarbanes-Oxley neither requires the CEO nor the CFO to certify the financial statements. 12. Which of the following is not one of the three categories of assertions? easy a. Assertions about classes of transactions and events for the period under audit b b. Assertions about financial statements and correspondence to GAAP c. Assertions about account balances at period end d. Assertions about presentation and disclosure 13. easy If a short-term note payable is included in the accounts payable balance on the financial statement, there is a violation of the: d a. completeness assertion. b. existence assertion. c. cutoff assertion. d. classification and understandability assertion. 14. Professional skepticism requires auditors to possess a(n) ______ mind. easy a. introspective b b. questioning c. intelligent d. unbelieving 15. easy c The auditor has no responsibility to plan and perform the audit to obtain reasonable assurance that misstatements, whether caused by errors or fraud, that are not ________ are detected. a. important to the financial statements b. statistically significant to the financial statements c. material to the financial statements d. identified by the client 16. Fraudulent financial reporting is most likely to be committed by whom? easy a. Line employees of the company. c b. Outside members of the company’s board of directors. c. Company management. d. The company’s auditors. 17. Which of the following would most likely be deemed a direct-effect illegal act? easy a. Violation of federal employment laws. c b. Violation of federal environmental regulations. c. Violation of federal income tax laws. d. Violation of civil rights laws. 18. The concept of reasonable assurance indicates that the auditor is: easy a. not an insurer of the correctness of the financial statements. a b. not responsible for the fairness of the financial statements. c. responsible only for issuing an opinion on the financial statements. d. responsible for finding all misstatements. 19. Tests of details of balances are specific procedures intended to: easy a. test for monetary errors in the financial statements. a b. prove that the accounts with material balances are classified correctly. c. prove that the trial balance is in balance. d. identify the details of the internal control system. 20. Which of the following is the auditor least likely to do when aware of an illegal act? easy a. Discuss the matter with the client’s legal counsel. c b. Obtain evidence about the potential effect of the illegal act on the financial statements. c. Contact the local law enforcement officials regarding potential criminal wrongdoing. d. Consider the impact of the illegal act on the relationship with the company’s management. 21. medium c The auditor gives an audit opinion on the fair presentation of the financial statements and associates his or her name with it when, on the basis of adequate evidence, the auditor concludes that the financial statements are unlikely to mislead: a. investors. b. management. c. a prudent user. d. the reader. 22. medium The responsibility for the preparation of the financial statements and the accompanying footnotes belongs to: b a. the auditor. b. management. c. both management and the auditor equally. d. management for the statements and the auditor for the notes. 23. When engaged to audit the financial statements, it is acceptable for the auditor to draft: medium a The client’s financial statements The footnotes to the client’s financial statements a. Yes Yes b. No No c. Yes No d. No Yes 24. medium The auditor has considerable responsibility for notifying users as to whether or not the statements are properly stated. This imposes upon the auditor a duty to: a a. provide reasonable assurance that material misstatements will be detected. b. be a guarantor of the fairness in the statements. c. be equally responsible with management for the preparation of the financial statements. d. be an insurer of the fairness in the statements. 25. easy “The auditor should not assume that management is dishonest, but the possibility of dishonesty must be considered.” This is an example of: b a. unprofessional behavior. b. an attitude of professional skepticism. c. due diligence. d. a rule in the AICPA’s Code of Professional Conduct. 26. medium If the auditor were responsible for making certain that all of management’s assertions in the financial statements were absolutely correct: d a. bankruptcies could no longer occur. b. bankruptcies would be reduced to a very small number. c. audits would be much easier to complete. d. audits would not be economically feasible. 27. medium The auditor’s best defense when existing material misstatements in the financial statements are not uncovered in the audit is: d a. the audit was conducted in accordance with generally accepted accounting principles. b. the financial statements are the client’s responsibility. c. the client is guilty of contributory negligence. d. the client is guilty of fraudulent misrepresentation. 28. Fraudulent financial reporting is often called: medium a. management fraud. a b. theft of assets. c. defalcation. d. embezzlement. 29. Which of the following statements is usually true? challenging a. It is easier for the auditor to uncover fraud than errors. c b. It is easier for the auditor to uncover indirect-effect illegal acts than fraud. c. The auditor’s responsibility for detecting direct-effect illegal acts is similar to the responsibility to detect fraud. d. The auditor’s responsibility for detecting indirect-effect illegal acts is similar to the responsibility to detect fraud. 30. medium Auditing standards make _____ distinction(s) between the auditor’s responsibilities for searching for errors and fraud. c a. little