TEST BANK for Auditing & Assurance Services: A
Systematic Approach 12TH Edition, by Douglas F.
Prawitt William F. Messier Jr, Steven M. Glover
All Chapters Covered 1-21| Expert Verified Questions & Correct
Answers for Exam Preparations| A+ GRADE ASSURED
All Answers are at the End of Each Chapter
1|Page
,1. Why do auditors often use a sampling approach to evidence gathering?
a) Auditors are experts and do not need to look at much evidence.
b) Auditors must balance audit cost with the need for precision, and not all data can be analyzed with
technology.
c) Auditors must limit exposure to maintain independence.
d) Management restricts access to financial data.
Answer: b
Rationale: Sampling balances cost-effectiveness with reliability. Full population testing is rarely feasible,
so auditors use sampling combined with data analytics to gather sufficient appropriate evidence.
2. Which statement best describes the relationship between sample size and materiality?
a) If materiality increases, sample size increases.
b) Higher assurance requires smaller sample sizes.
c) If materiality decreases, sample size increases.
d) Sample size is unrelated to assurance or materiality.
Answer: c
Rationale: Lower materiality thresholds demand greater precision, which increases the required sample size
to detect smaller misstatements.
3. Which statement about the study of auditing is NOT true?
a) Valuable to accountants whether or not they become auditors.
b) Focuses on analytical skills to assess information reliability.
c) Focuses primarily on technical computations for investment decisions.
d) Begins with logical frameworks and evidence-gathering techniques.
Answer: c
Rationale: Auditing emphasizes logic, skepticism, and evaluation of evidence, not financial computations
or investment analysis.
4. The basic definition of auditing indicates it is a process to:
a) Detect fraud.
b) Examine transactions individually for validity.
c) Objectively obtain and evaluate evidence on assertions.
d) Ensure uniform application of accounting procedures.
2|Page
,Answer: c
Rationale: The core of auditing is obtaining and evaluating evidence about management assertions to
provide an objective opinion.
5. Assurance services may improve all of the following except:
a) Relevance
b) Credibility
c) Periodicity
d) Reliability
Answer: c
Rationale: Assurance enhances decision usefulness by improving reliability and credibility, but it does not
alter periodicity of reporting.
6. Evidence is reliable if it:
a) Signals the true state of a management assertion.
b) Applies to the audited period.
c) Relates to the specific audit assertion.
d) Is sufficient to justify a conclusion.
Answer: a
Rationale: Reliability is highest when evidence faithfully represents reality and is free from bias.
7. Audit risk is best defined as:
a) The risk of auditor litigation.
b) The risk of giving an inappropriate opinion on materially misstated financials.
c) The overall risk of misstatement in financials.
d) The risk of inappropriate audit procedures.
Answer: b
Rationale: Audit risk specifically refers to the probability the auditor issues the wrong opinion when
financials are materially misstated.
8. If an auditor lacks industry expertise at engagement acceptance, they should:
a) Engage outside industry specialists.
3|Page
, b) Acquire knowledge of the client’s industry.
c) Refer work to another CPA.
d) Notify management they cannot give an unqualified opinion.
Answer: b
Rationale: Auditors must gain sufficient understanding of the client’s business and industry to conduct the
audit properly.
9. For publicly-held companies, which is integrated with the financial statement audit?
a) Audit of budgets
b) Audit of internal controls
c) Audit of forecasts
d) Audit of interim financials
Answer: b
Rationale: PCAOB standards require integrated audits of both financial statements and internal controls for
public companies.
10. During the first audit phase, the CPA most likely:
a) Identifies specific fraud-preventing controls.
b) Tests accounting estimates.
c) Evaluates management integrity.
d) Confirms with legal counsel on contingencies.
Answer: c
Rationale: Before engagement, assessing management integrity is crucial since unreliable management
undermines audit credibility.
11. In agency theory, information asymmetry means:
a) Information varies in reliability.
b) Information varies in relevance.
c) Management knows more than absentee owners.
d) Management ignores owners’ interests.
Answer: c
Rationale: Information asymmetry exists because managers possess more inside knowledge than
shareholders, creating demand for audits.
4|Page
Systematic Approach 12TH Edition, by Douglas F.
Prawitt William F. Messier Jr, Steven M. Glover
All Chapters Covered 1-21| Expert Verified Questions & Correct
Answers for Exam Preparations| A+ GRADE ASSURED
All Answers are at the End of Each Chapter
1|Page
,1. Why do auditors often use a sampling approach to evidence gathering?
a) Auditors are experts and do not need to look at much evidence.
b) Auditors must balance audit cost with the need for precision, and not all data can be analyzed with
technology.
c) Auditors must limit exposure to maintain independence.
d) Management restricts access to financial data.
Answer: b
Rationale: Sampling balances cost-effectiveness with reliability. Full population testing is rarely feasible,
so auditors use sampling combined with data analytics to gather sufficient appropriate evidence.
2. Which statement best describes the relationship between sample size and materiality?
a) If materiality increases, sample size increases.
b) Higher assurance requires smaller sample sizes.
c) If materiality decreases, sample size increases.
d) Sample size is unrelated to assurance or materiality.
Answer: c
Rationale: Lower materiality thresholds demand greater precision, which increases the required sample size
to detect smaller misstatements.
3. Which statement about the study of auditing is NOT true?
a) Valuable to accountants whether or not they become auditors.
b) Focuses on analytical skills to assess information reliability.
c) Focuses primarily on technical computations for investment decisions.
d) Begins with logical frameworks and evidence-gathering techniques.
Answer: c
Rationale: Auditing emphasizes logic, skepticism, and evaluation of evidence, not financial computations
or investment analysis.
4. The basic definition of auditing indicates it is a process to:
a) Detect fraud.
b) Examine transactions individually for validity.
c) Objectively obtain and evaluate evidence on assertions.
d) Ensure uniform application of accounting procedures.
2|Page
,Answer: c
Rationale: The core of auditing is obtaining and evaluating evidence about management assertions to
provide an objective opinion.
5. Assurance services may improve all of the following except:
a) Relevance
b) Credibility
c) Periodicity
d) Reliability
Answer: c
Rationale: Assurance enhances decision usefulness by improving reliability and credibility, but it does not
alter periodicity of reporting.
6. Evidence is reliable if it:
a) Signals the true state of a management assertion.
b) Applies to the audited period.
c) Relates to the specific audit assertion.
d) Is sufficient to justify a conclusion.
Answer: a
Rationale: Reliability is highest when evidence faithfully represents reality and is free from bias.
7. Audit risk is best defined as:
a) The risk of auditor litigation.
b) The risk of giving an inappropriate opinion on materially misstated financials.
c) The overall risk of misstatement in financials.
d) The risk of inappropriate audit procedures.
Answer: b
Rationale: Audit risk specifically refers to the probability the auditor issues the wrong opinion when
financials are materially misstated.
8. If an auditor lacks industry expertise at engagement acceptance, they should:
a) Engage outside industry specialists.
3|Page
, b) Acquire knowledge of the client’s industry.
c) Refer work to another CPA.
d) Notify management they cannot give an unqualified opinion.
Answer: b
Rationale: Auditors must gain sufficient understanding of the client’s business and industry to conduct the
audit properly.
9. For publicly-held companies, which is integrated with the financial statement audit?
a) Audit of budgets
b) Audit of internal controls
c) Audit of forecasts
d) Audit of interim financials
Answer: b
Rationale: PCAOB standards require integrated audits of both financial statements and internal controls for
public companies.
10. During the first audit phase, the CPA most likely:
a) Identifies specific fraud-preventing controls.
b) Tests accounting estimates.
c) Evaluates management integrity.
d) Confirms with legal counsel on contingencies.
Answer: c
Rationale: Before engagement, assessing management integrity is crucial since unreliable management
undermines audit credibility.
11. In agency theory, information asymmetry means:
a) Information varies in reliability.
b) Information varies in relevance.
c) Management knows more than absentee owners.
d) Management ignores owners’ interests.
Answer: c
Rationale: Information asymmetry exists because managers possess more inside knowledge than
shareholders, creating demand for audits.
4|Page
