Auditing Exam 1 Practice UPDATED Exam Questions and CORRECT Answers

Auditing Exam 1 Practice UPDATED Exam
Questions and CORRECT Answers
1) In the auditing process
A) the types and amounts of evidence remain constant from audit to audit.
B) the criteria for evaluating information will not vary depending on the information being
audited.
C) the audit report communicates the auditor's findings to users.
D) records are gathered by the auditor to determine whether the audited information is stated in
accordance with SEC standards. - CORRECT ANSWER - C) the audit report
communicates the auditor's findings to users.


3) Which of the following can be used as a criteria for evaluating information being audited?
A) International Financial Reporting Standards (IFRS)
B) Generally Accepted Accounting Principles (GAAP)
C) Internal Revenue Code (IRC)

D) all of the above - CORRECT ANSWER - D) all of the above


4) Evidence is paramount to audit and attestation engagements. List the four basic types of audit
evidence.
Answer: The four types of audit and attestation evidence include
1. Electronic and documentary data about transactions
2. Written and electronic communications with outsiders
3. Observations by the auditor

4. Oral testimony of the auditee (client) - CORRECT ANSWER -


1) Recording, classifying, and summarizing economic events in a logical manner for the purpose
of providing financial information for decision making is commonly called
A) finance.
B) auditing.

,C) accounting.

D) economics. - CORRECT ANSWER - C) accounting.


2) An accountant
A) must possess expertise in the accumulation of audit evidence.
B) must decide the number and types of items to test.
C) must have an understanding of the principles and rules that provide the basis for preparing the
accounting information.

D) must be a CPA. - CORRECT ANSWER - C) must have an understanding of the
principles and rules that provide the basis for preparing the accounting information.


3) When auditing accounting data, auditors focus on
A) determining whether recorded information properly reflects the economic events that
occurred during the accounting period.
B) determining if fraud has occurred.
C) determining if taxable income has been calculated correctly.
D) analyzing the financial information to be sure that it complies with government requirements.
- CORRECT ANSWER - A) determining whether recorded information properly reflects
the economic events that occurred during the accounting period.


4) The trait that distinguishes auditors from accountants is the
A) auditor's ability to interpret accounting principles generally accepted in the United States.
B) auditor's education beyond the bachelor's degree.
C) auditor's ability to interpret FASB Statements.
D) auditor's expertise in the accumulation and interpretation of audit evidence. - CORRECT
ANSWER - D) auditor's expertise in the accumulation and interpretation of audit evidence.


1) ________ risk reflects the possibility that the information upon which the business decision
was made was inaccurate.
A) Client acceptance

,B) Information
C) Business

D) Control - CORRECT ANSWER - B) Information


2) The possibility that a business may not be able to repay a bank loan because of an economic
downturn is referred to as
A) materiality risk.
B) information risk.
C) interest rate risk.

D) business risk. - CORRECT ANSWER - D) business risk.


1) A correct relationship among the auditor, the client, and the external users is
A) management of a public company hires the independent auditor.
B) the audit committee of a private company hires the independent auditor.
C) the client provides capital to the external users.
D) the external users can rely upon the auditor's report to reduce information risk. - CORRECT
ANSWER - D) the external users can rely upon the auditor's report to reduce information
risk.


2) The most common way for users to obtain reliable information is to
A) have an internal audit.
B) have an independent audit.
C) verify all information individually.

D) verify the information with management. - CORRECT ANSWER - B) have an
independent audit.


3) External users of the financial statements
A) value the auditor's report because of the auditor's independence from the client.
B) look to the auditor's report as an indication of the statements' reliability.

, C) use the audited information on the assumption that it is reasonably complete, accurate, and
unbiased.

D) all of the above. - CORRECT ANSWER - D) all of the above.


1) In the audit of historical financial statements, management asserts that the financial statements
are fairly stated in accordance with what standards?
A) regulatory accounting principles
B) applicable international accounting standards
C) applicable U.S. accounting standards

D) B and C - CORRECT ANSWER - D) B and C


2) Any service that requires a CPA firm to issue a report about the reliability of an assertion that
is made by another party is a(n)
A) accounting and bookkeeping service.
B) attestation service.
C) assurance service.

D) tax service. - CORRECT ANSWER - B) attestation service.


3) Three common types of attestation services are
A) audits of historical financial statements, reviews of historical financial statements, and audits
of internal control over financial reporting.
B) audits of historical financial information, verifications of historical financial information, and
attestations regarding internal controls.
C) reviews of historical financial information, verifications of future financial information, and
attestations regarding internal controls.
D) audits of historical financial information, reviews of controls related to investments, and
verifications of historical financial information. - CORRECT ANSWER - A) audits of
historical financial statements, reviews of historical financial statements, and audits of internal
control over financial reporting.