https://browsegrades.net/singlePaper/416762/testbank-for-auditing-a-practical-approach-4th-c
1
TestBank for Auditing A Practical Approach,
4th Canadian Edition 4th Edition, Kindle Edition
by Robyn Moroney , Fiona Campbell , Jane
Hamilton , Valerie Warren
Page 1 of 862
, TEST BANK for Auditing A Practical Approach, 4th Canadian Edition Moroney, Campbell, Warren
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2
CHAPTER 1
INTRODUCTION AND OVERVIEW OF AUDIT AND
ASSURANCE
CHAPTER LEARNING OBJECTIVES
1. Define an assurance engagement.
An assurance engagement involves an assurance provider arriving atan opinion about some
information being provided by their client toa third party. A financial statement audit is one
type of assuranceengagement. This engagement involves an auditor arriving at an
opinionabout the fair presentation of the financial statements. The auditreport is addressed
to the shareholders of the company being audited,but other users may read the financial
statements. Learning aboutauditing and assurance requires an understanding of auditing
andassurance terminology, including terms such as audit risk, materiality,internal controls,
listed entity, and assertions.
2. Explain why there is a demand for audit and assurance services.
Financial statement users include investors (shareholders), suppliers,customers, lenders,
employees, governments, and the general public.These groups of users demand audited
financial statements because oftheir remoteness from the entity, accounting complexity,
theirincentivescompeting with those of the entity‘s managers, and their needfor reliable
information on which to base decisions. The theories usedto describe the demand for audit
and assurance services are agencytheory, the information hypothesis, and the insurance
hypothesis.
3. Differentiate between types of assurance services.
Assurance services include financial statement audits, complianceaudits, performance
audits, comprehensive audits, internal audits,and assurance on corporate social
responsibility (CSR) disclosures.
4. Explain the different levels of assurance.
The different levels of assurance include reasonable assurance, whichis the highest level of
assurance, limited assurance, and no assurance.Reasonable assurance is provided on an
audit of a company‘sfinancial statements. Limited assurance is provided in a review of
acompany‘s financial Dsotwante
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ade
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3
5. Outline different audit opinions
An auditor can issue an unmodified opinion, also known as a cleanreport, or an unmodified
opinion with an emphasis of matter paragraph.Alternatively, a modified opinion may be
issued as a qualified, anadverse, or a disclaimer of opinion.
6. Differentiate between the roles of the preparer and the auditor, and discuss the
different firms that provide assurance services.
It is the responsibility of a company‘s governing body to ensure thatits financial statements
are relevant, reliable, comparable, understandable,and true and fair. It is the responsibility of
the auditor to form anopinion on the fair presentation of the financial statements. In doing,so
1- 2 Auditing: A Practical Approach, Fourth Canadian Edition
the auditor must maintain professional scepticism and utilize professionaljudgement and due
care.
The firms that provide assurance services include the Big-4international firms, the national
firms (with international links),local and regional firms, and consulting firms that tend to
specializein assurance of CSR and environmental disclosures.
7. Identify the different regulators, legislation, and regulations surrounding the
assurance process.
lOM oAR c P S D | 30878 49 5
Introduction and Overview of Audit and Assurance 1-3
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4
TRUE-FALSE STATEMENTS
1. Only current investors (not potential investors) are considered to be users of the financial
statements.
Answer: False
Bloomcode: Knowledge
Difficulty: Easy
Learning Objective: Explain why there is a demand for audit and assurance services.
Section Reference: 1.2 Demand for audit and assurance services
CPA Competency: Audit and Assurance
AACSB: Analytic
2. Insurance hypothesis is a means whereby the investor can guarantee the success of their
investment.
Answer: False
Bloomcode: Comprehension
Difficulty: Medium
Learning Objective: Explain why there is a demand for audit and assurance services.
Section Reference: 1.2 Demand for audit and assurance services
CPA Competency: Audit and Assurance
AACSB: Analytic
3. A compliance audit involves gathering evidence to ascertain whether the person or entity
under review has followed the rules, policies, procedures, laws and regulations with which
they must conform
Answer: True
Bloomcode: Comprehension
Difficulty: Medium
Learning Objective: Differentiate between types of assurance services.
Section Reference: 1.3 Different assurance services
CPA Competency: Audit and Assurance
AACSB: Analytic
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4. An operational audit is an example of a compliance audit.
Answer: False
Bloomcode: Knowledge
Difficulty: Medium
Learning Objective: Differentiate between types of assurance services.
Section Reference: 1.3 Different assurance services
CPA Competency: Audit and Assurance
AACSB: Analytic
1- 4 Auditing: A Practical Approach, Fourth Canadian Edition
5. The most common types of assurance engagements are financial statement audits,
confirmation audits, performance audits, comprehensive audits and assurance on corporate
social responsibility (CSR) disclosures.
Answer: False
Bloomcode: Comprehension
Difficulty: Medium
Learning Objective: Differentiate between types of assurance services.
Section Reference: 1.3 Different assurance services
CPA Competency: Audit and Assurance
AACSB: Analytic
6. The nature of audit procedures refers to the reliance on evidence provided by the client
and its management.
Answer: True
Bloomcode: Knowledge
Difficulty: Medium
Learning Objective: Differentiate between types of assurance services.
Section Reference: 1.3 Different assurance services
CPA Competency: Audit and Assurance
AACSB: Analytic
7. It is the auditor‘s responsibility to prepare
Pagethe financial
5 of 862 statements.
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Answer: False
Bloomcode: Knowledge
Difficulty: Medium
Learning Objective: Differentiate between types of assurance services.
Section Reference: 1.3 Different assurance services
CPA Competency: Audit and Assurance
AACSB: Analytic
8. An auditor can provide a reasonable level of assurance on information other than
historical financial information.
Answer: True
Bloomcode: Comprehension
Difficulty: Easy
Learning Objective: Explain the different levels of assurance.
Section Reference: 1.4 Different levels of assurance
CPA Competency: Audit and Assurance
AACSB: Analytic
9. A reasonable level of assurance is the highest level of assurance that an auditor can
provide.
.
Answer: True
Bloomcode: Comprehension
Difficulty: Medium
Learning Objective: Explain the different levels of assurance.
Section Reference: 1.4 Different levels of assurance
CPA Competency: Audit and Assurance
AACSB: Analytic
10. A no assurance engagement is of little use as no assurance is given to the client.
Answer: False
Bloomcode: Comprehension
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Difficulty: Medium
Learning Objective: Explain the different levels7of assurance.
Section Reference: 1.4 Different levels of assurance
CPA Competency: Audit and Assurance
AACSB: Analytic
11. A negative expression of opinion is only given when there is a disagreement with
management and the auditor.
Answer: False
Bloomcode:Knowledge
Difficulty: Medium
Learning Objective: Outline different audit opinions.
Section Reference: 1.5 Different audit opinions
CPA Competency: Audit and Assurance
AACSB: Analytic
12. All modified audit reports are qualified audit opinions.
Answer: False
Bloomcode: Knowledge
Difficulty: Medium
Learning Objective: Outline different audit opinions.
Section Reference: 1.5 Different audit opinions
CPA Competency: Audit and Assurance
AACSB: Analytic
13. The expectation gap is caused by unrealistic user expectations such as the auditor
providing a moderate level of assurance.
Answer: False
Bloomcode:Comprehension
Difficulty: Medium
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1- 6 Auditing: A Practical Approach, Fourth Canadian Edition
Learning Objective: Describe the audit expectation gap.
Section Reference: 1.8 The audit expectation gap
CPA Competency: Audit and Assurance
AACSB: Analytic
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9
Introduction and Overview of Audit and Assurance 1-7
MULTIPLE CHOICE QUESTIONS
14. Martha Minnati was reviewing the previous year‘s audited financial statements of a
clothing manufacturer. Her manager explained to her that for a financial statement audit, the
clothing company was the accountable party, its shareholders were the users, and the
subject matter was the financial statements. What kind of audit engagement was her
manager describing?
a) consulting engagement
b) assurance engagement
c) review engagement
d) compliance engagement
Answer: b
Bloomcode: Comprehension
Difficulty: Easy
Learning Objective: Define an assurance engagement.
Section Reference: 1.1 Auditing and assurance defined
CPA Competency: Audit and Assurance
AACSB: Analytic
15. An engagement performed by an auditor or consultant to enhance the reliability of the
subject matter can best be described as a(n)
a) compilation engagement.
b) review engagement.
c) consultancy engagement.
d) assurance engagement.
Answer: d
Bloomcode: Comprehension
Difficulty: Medium
Learning Objective: Define an assurance engagement.
Section Reference: 1.1 Auditing and assurance defined
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CPA Competency: Audit and Assurance
10
AACSB: Analytic
16. An example of the three parties in an assurance engagement would be:
a) audit client, employee, customer.
b) audit client, supplier, auditor.
c) auditor, shareholder, general public.
d) auditor, general public, employees.
Answer: b
Bloomcode: Knowledge
Difficulty: Medium
1- 8 Auditing: A Practical Approach, Fourth Canadian Edition
Learning Objective: Define an assurance engagement.
Section Reference: 1.1 Auditing and assurance defined
CPA Competency: Audit and Assurance
AACSB: Analytic
17. A limitation of an audit is caused by
a) the nature of financial reporting.
b) the nature of audit procedures.
c) the need for the audit to be conducted within a reasonable period of time and at a
reasonable cost.
d) all of the above
Answer: d
Bloomcode: Comprehension
Difficulty: Medium
Learning Objective: Define an assurance engagement.
Section Reference: 1.1 Auditing and assurance defined
CPA Competency: Audit and Assurance
AACSB: Analytic
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1
TestBank for Auditing A Practical Approach,
4th Canadian Edition 4th Edition, Kindle Edition
by Robyn Moroney , Fiona Campbell , Jane
Hamilton , Valerie Warren
Page 1 of 862
, TEST BANK for Auditing A Practical Approach, 4th Canadian Edition Moroney, Campbell, Warren
Stuvia.com - The Marketplace to Buy and Sell your Study Material
https://browsegrades.net/singlePaper/416762/testbank-for-auditing-a-practical-approach-4th-c
2
CHAPTER 1
INTRODUCTION AND OVERVIEW OF AUDIT AND
ASSURANCE
CHAPTER LEARNING OBJECTIVES
1. Define an assurance engagement.
An assurance engagement involves an assurance provider arriving atan opinion about some
information being provided by their client toa third party. A financial statement audit is one
type of assuranceengagement. This engagement involves an auditor arriving at an
opinionabout the fair presentation of the financial statements. The auditreport is addressed
to the shareholders of the company being audited,but other users may read the financial
statements. Learning aboutauditing and assurance requires an understanding of auditing
andassurance terminology, including terms such as audit risk, materiality,internal controls,
listed entity, and assertions.
2. Explain why there is a demand for audit and assurance services.
Financial statement users include investors (shareholders), suppliers,customers, lenders,
employees, governments, and the general public.These groups of users demand audited
financial statements because oftheir remoteness from the entity, accounting complexity,
theirincentivescompeting with those of the entity‘s managers, and their needfor reliable
information on which to base decisions. The theories usedto describe the demand for audit
and assurance services are agencytheory, the information hypothesis, and the insurance
hypothesis.
3. Differentiate between types of assurance services.
Assurance services include financial statement audits, complianceaudits, performance
audits, comprehensive audits, internal audits,and assurance on corporate social
responsibility (CSR) disclosures.
4. Explain the different levels of assurance.
The different levels of assurance include reasonable assurance, whichis the highest level of
assurance, limited assurance, and no assurance.Reasonable assurance is provided on an
audit of a company‘sfinancial statements. Limited assurance is provided in a review of
acompany‘s financial Dsotwante
lom
ade
ednbts
y:.BN
Ro aTsEsPage
IGH uSra
R nDc2IeEof
TU Sis|862
jproohvriadbehd
am in70a@cgm
asa omail.p
coilm
ationengagem
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3
5. Outline different audit opinions
An auditor can issue an unmodified opinion, also known as a cleanreport, or an unmodified
opinion with an emphasis of matter paragraph.Alternatively, a modified opinion may be
issued as a qualified, anadverse, or a disclaimer of opinion.
6. Differentiate between the roles of the preparer and the auditor, and discuss the
different firms that provide assurance services.
It is the responsibility of a company‘s governing body to ensure thatits financial statements
are relevant, reliable, comparable, understandable,and true and fair. It is the responsibility of
the auditor to form anopinion on the fair presentation of the financial statements. In doing,so
1- 2 Auditing: A Practical Approach, Fourth Canadian Edition
the auditor must maintain professional scepticism and utilize professionaljudgement and due
care.
The firms that provide assurance services include the Big-4international firms, the national
firms (with international links),local and regional firms, and consulting firms that tend to
specializein assurance of CSR and environmental disclosures.
7. Identify the different regulators, legislation, and regulations surrounding the
assurance process.
lOM oAR c P S D | 30878 49 5
Introduction and Overview of Audit and Assurance 1-3
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4
TRUE-FALSE STATEMENTS
1. Only current investors (not potential investors) are considered to be users of the financial
statements.
Answer: False
Bloomcode: Knowledge
Difficulty: Easy
Learning Objective: Explain why there is a demand for audit and assurance services.
Section Reference: 1.2 Demand for audit and assurance services
CPA Competency: Audit and Assurance
AACSB: Analytic
2. Insurance hypothesis is a means whereby the investor can guarantee the success of their
investment.
Answer: False
Bloomcode: Comprehension
Difficulty: Medium
Learning Objective: Explain why there is a demand for audit and assurance services.
Section Reference: 1.2 Demand for audit and assurance services
CPA Competency: Audit and Assurance
AACSB: Analytic
3. A compliance audit involves gathering evidence to ascertain whether the person or entity
under review has followed the rules, policies, procedures, laws and regulations with which
they must conform
Answer: True
Bloomcode: Comprehension
Difficulty: Medium
Learning Objective: Differentiate between types of assurance services.
Section Reference: 1.3 Different assurance services
CPA Competency: Audit and Assurance
AACSB: Analytic
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4. An operational audit is an example of a compliance audit.
Answer: False
Bloomcode: Knowledge
Difficulty: Medium
Learning Objective: Differentiate between types of assurance services.
Section Reference: 1.3 Different assurance services
CPA Competency: Audit and Assurance
AACSB: Analytic
1- 4 Auditing: A Practical Approach, Fourth Canadian Edition
5. The most common types of assurance engagements are financial statement audits,
confirmation audits, performance audits, comprehensive audits and assurance on corporate
social responsibility (CSR) disclosures.
Answer: False
Bloomcode: Comprehension
Difficulty: Medium
Learning Objective: Differentiate between types of assurance services.
Section Reference: 1.3 Different assurance services
CPA Competency: Audit and Assurance
AACSB: Analytic
6. The nature of audit procedures refers to the reliance on evidence provided by the client
and its management.
Answer: True
Bloomcode: Knowledge
Difficulty: Medium
Learning Objective: Differentiate between types of assurance services.
Section Reference: 1.3 Different assurance services
CPA Competency: Audit and Assurance
AACSB: Analytic
7. It is the auditor‘s responsibility to prepare
Pagethe financial
5 of 862 statements.
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Answer: False
Bloomcode: Knowledge
Difficulty: Medium
Learning Objective: Differentiate between types of assurance services.
Section Reference: 1.3 Different assurance services
CPA Competency: Audit and Assurance
AACSB: Analytic
8. An auditor can provide a reasonable level of assurance on information other than
historical financial information.
Answer: True
Bloomcode: Comprehension
Difficulty: Easy
Learning Objective: Explain the different levels of assurance.
Section Reference: 1.4 Different levels of assurance
CPA Competency: Audit and Assurance
AACSB: Analytic
9. A reasonable level of assurance is the highest level of assurance that an auditor can
provide.
.
Answer: True
Bloomcode: Comprehension
Difficulty: Medium
Learning Objective: Explain the different levels of assurance.
Section Reference: 1.4 Different levels of assurance
CPA Competency: Audit and Assurance
AACSB: Analytic
10. A no assurance engagement is of little use as no assurance is given to the client.
Answer: False
Bloomcode: Comprehension
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Difficulty: Medium
Learning Objective: Explain the different levels7of assurance.
Section Reference: 1.4 Different levels of assurance
CPA Competency: Audit and Assurance
AACSB: Analytic
11. A negative expression of opinion is only given when there is a disagreement with
management and the auditor.
Answer: False
Bloomcode:Knowledge
Difficulty: Medium
Learning Objective: Outline different audit opinions.
Section Reference: 1.5 Different audit opinions
CPA Competency: Audit and Assurance
AACSB: Analytic
12. All modified audit reports are qualified audit opinions.
Answer: False
Bloomcode: Knowledge
Difficulty: Medium
Learning Objective: Outline different audit opinions.
Section Reference: 1.5 Different audit opinions
CPA Competency: Audit and Assurance
AACSB: Analytic
13. The expectation gap is caused by unrealistic user expectations such as the auditor
providing a moderate level of assurance.
Answer: False
Bloomcode:Comprehension
Difficulty: Medium
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1- 6 Auditing: A Practical Approach, Fourth Canadian Edition
Learning Objective: Describe the audit expectation gap.
Section Reference: 1.8 The audit expectation gap
CPA Competency: Audit and Assurance
AACSB: Analytic
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Introduction and Overview of Audit and Assurance 1-7
MULTIPLE CHOICE QUESTIONS
14. Martha Minnati was reviewing the previous year‘s audited financial statements of a
clothing manufacturer. Her manager explained to her that for a financial statement audit, the
clothing company was the accountable party, its shareholders were the users, and the
subject matter was the financial statements. What kind of audit engagement was her
manager describing?
a) consulting engagement
b) assurance engagement
c) review engagement
d) compliance engagement
Answer: b
Bloomcode: Comprehension
Difficulty: Easy
Learning Objective: Define an assurance engagement.
Section Reference: 1.1 Auditing and assurance defined
CPA Competency: Audit and Assurance
AACSB: Analytic
15. An engagement performed by an auditor or consultant to enhance the reliability of the
subject matter can best be described as a(n)
a) compilation engagement.
b) review engagement.
c) consultancy engagement.
d) assurance engagement.
Answer: d
Bloomcode: Comprehension
Difficulty: Medium
Learning Objective: Define an assurance engagement.
Section Reference: 1.1 Auditing and assurance defined
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CPA Competency: Audit and Assurance
10
AACSB: Analytic
16. An example of the three parties in an assurance engagement would be:
a) audit client, employee, customer.
b) audit client, supplier, auditor.
c) auditor, shareholder, general public.
d) auditor, general public, employees.
Answer: b
Bloomcode: Knowledge
Difficulty: Medium
1- 8 Auditing: A Practical Approach, Fourth Canadian Edition
Learning Objective: Define an assurance engagement.
Section Reference: 1.1 Auditing and assurance defined
CPA Competency: Audit and Assurance
AACSB: Analytic
17. A limitation of an audit is caused by
a) the nature of financial reporting.
b) the nature of audit procedures.
c) the need for the audit to be conducted within a reasonable period of time and at a
reasonable cost.
d) all of the above
Answer: d
Bloomcode: Comprehension
Difficulty: Medium
Learning Objective: Define an assurance engagement.
Section Reference: 1.1 Auditing and assurance defined
CPA Competency: Audit and Assurance
AACSB: Analytic
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