,Auditing, 12e (Arens)
Chapter 1 The Demand for an Auditing and Assurance Profession
1.1 Identify the components of an audit and explain why there is a demand for audits
1) Which of the following illustrates the definition of auditing with respect to the evidence
analysis process?
A) accumulation and evaluation of evidence about balance sheet accounts
B) learning about different types of computing technology, such as mainframes
C) writing an operational audit report that is tailored to the client's situation
D) making sure that the auditor is competent and understands evidence gathering
Answer: A
Diff: 1 Type: MC Page Ref: 5
Learning Obj.: 1-1 Identify the components of an audit and explain why there is a demand for
audits
2) Auditing should be done by a qualified
A) chartered accountant.
B) certified management accountant.
C) competent and independent person.
D) professional accountant.
Answer: C
Diff: 2 Type: MC Page Ref: 5
Learning Obj.: 1-1 Identify the components of an audit and explain why there is a demand for
audits
3) Which of the following illustrates the definition of auditing with respect to the reporting
process?
A) accumulation and evaluation of evidence about balance sheet accounts
B) reporting on the degree of correspondence between financial statements and ASPE
C) writing an operational audit report that is tailored to the client's situation
D) making sure that the auditor is competent and understands evidence gathering
Answer: B
Diff: 2 Type: MC Page Ref: 5
Learning Obj.: 1-1 Identify the components of an audit and explain why there is a demand for
audits
4) In the audit of historical financial statements by PA firms, the criteria used are
A) generally accepted auditing standards.
B) generally accepted accounting principles.
C) regulations of the Canada Revenue Agency.
D) regulations of the provincial securities commissions.
Answer: B
Diff: 1 Type: MC Page Ref: 5
Learning Obj.: 1-1 Identify the components of an audit and explain why there is a demand for
audits
1
© 2013 Pearson Canada Inc.
,5) A large PA firm has assessed evidence collected during an engagement. Criteria used to assess
the financial statements were International Financial Reporting Standards (IFRS). A high level of
assurance was obtained. The type of engagement conducted was a(n)
A) audit.
B) review.
C) management consulting.
D) compilation.
Answer: A
Diff: 2 Type: MC Page Ref: 5
Learning Obj.: 1-1 Identify the components of an audit and explain why there is a demand for
audits
6) The auditor and the entities should agree on the criteria to be used in the audit
A) before the audit starts.
B) after the audit planning has been done.
C) as they progress with the audit as they can determine which criteria is more suitable.
D) at the end of the audit.
Answer: A
Diff: 1 Type: MC Page Ref: 5
Learning Obj.: 1-1 Identify the components of an audit and explain why there is a demand for
audits
7) George had a conversation with the accounting personnel and documented information about
how the accounting systems function. He has also placed copies of accounting forms in his files.
George is performing which task?
A) accounting procedures
B) evidence gathering
C) tax audit
D) audit report preparation
Answer: B
Diff: 3 Type: MC Page Ref: 5
Learning Obj.: 1-1 Identify the components of an audit and explain why there is a demand for
audits
8) One of the reasons that an auditor must be competent is to be able to
A) understand the engagement risks and the criteria used by the client.
B) explain how the bookkeeping should be done to his staff.
C) record the transactions properly for the underlying records.
D) capture the information properly in the computer files.
Answer: A
Diff: 2 Type: MC Page Ref: 6
Learning Obj.: 1-1 Identify the components of an audit and explain why there is a demand for
audits
2
© 2013 Pearson Canada Inc.
, 9) One of the reasons that an auditor must be competent is to be able to
A) select the type and amount of evidence to accumulate.
B) explain how the bookkeeping should be done to his staff.
C) record the transactions properly for the underlying records.
D) capture the information properly in the computer files.
Answer: A
Diff: 2 Type: MC Page Ref: 6
Learning Obj.: 1-1 Identify the components of an audit and explain why there is a demand for
audits
10) It is important for the auditor to be independent because
A) the auditor would not charge a fair rate to the client.
B) the auditor might not be as knowledgeable of the subject matter and the criteria.
C) this will prevent bias in accumulating and evaluating evidence.
D) the Canadian Tax Authorities require that the auditor be independent.
Answer: C
Diff: 2 Type: MC Page Ref: 6
Learning Obj.: 1-1 Identify the components of an audit and explain why there is a demand for
audits
11) Because an external auditor is paid a fee by a client company, he or she
A) is absolutely independent and may conduct an audit.
B) may be sufficiently independent to conduct an audit.
C) is never considered to be independent.
D) must receive approval of the relevant provincial securities commission before conducting an
audit.
Answer: B
Diff: 1 Type: MC Page Ref: 6
Learning Obj.: 1-1 Identify the components of an audit and explain why there is a demand for
audits
12) The independent auditor's report is the
A) communication of the result of the audit to the users.
B) set of audited financial statements.
C) invoice of the auditor detailing the work they have performed.
D) report presented to management about the possible improvements.
Answer: A
Diff: 2 Type: MC Page Ref: 6
Learning Obj.: 1-1 Identify the components of an audit and explain why there is a demand for
audits
3
© 2013 Pearson Canada Inc.
Chapter 1 The Demand for an Auditing and Assurance Profession
1.1 Identify the components of an audit and explain why there is a demand for audits
1) Which of the following illustrates the definition of auditing with respect to the evidence
analysis process?
A) accumulation and evaluation of evidence about balance sheet accounts
B) learning about different types of computing technology, such as mainframes
C) writing an operational audit report that is tailored to the client's situation
D) making sure that the auditor is competent and understands evidence gathering
Answer: A
Diff: 1 Type: MC Page Ref: 5
Learning Obj.: 1-1 Identify the components of an audit and explain why there is a demand for
audits
2) Auditing should be done by a qualified
A) chartered accountant.
B) certified management accountant.
C) competent and independent person.
D) professional accountant.
Answer: C
Diff: 2 Type: MC Page Ref: 5
Learning Obj.: 1-1 Identify the components of an audit and explain why there is a demand for
audits
3) Which of the following illustrates the definition of auditing with respect to the reporting
process?
A) accumulation and evaluation of evidence about balance sheet accounts
B) reporting on the degree of correspondence between financial statements and ASPE
C) writing an operational audit report that is tailored to the client's situation
D) making sure that the auditor is competent and understands evidence gathering
Answer: B
Diff: 2 Type: MC Page Ref: 5
Learning Obj.: 1-1 Identify the components of an audit and explain why there is a demand for
audits
4) In the audit of historical financial statements by PA firms, the criteria used are
A) generally accepted auditing standards.
B) generally accepted accounting principles.
C) regulations of the Canada Revenue Agency.
D) regulations of the provincial securities commissions.
Answer: B
Diff: 1 Type: MC Page Ref: 5
Learning Obj.: 1-1 Identify the components of an audit and explain why there is a demand for
audits
1
© 2013 Pearson Canada Inc.
,5) A large PA firm has assessed evidence collected during an engagement. Criteria used to assess
the financial statements were International Financial Reporting Standards (IFRS). A high level of
assurance was obtained. The type of engagement conducted was a(n)
A) audit.
B) review.
C) management consulting.
D) compilation.
Answer: A
Diff: 2 Type: MC Page Ref: 5
Learning Obj.: 1-1 Identify the components of an audit and explain why there is a demand for
audits
6) The auditor and the entities should agree on the criteria to be used in the audit
A) before the audit starts.
B) after the audit planning has been done.
C) as they progress with the audit as they can determine which criteria is more suitable.
D) at the end of the audit.
Answer: A
Diff: 1 Type: MC Page Ref: 5
Learning Obj.: 1-1 Identify the components of an audit and explain why there is a demand for
audits
7) George had a conversation with the accounting personnel and documented information about
how the accounting systems function. He has also placed copies of accounting forms in his files.
George is performing which task?
A) accounting procedures
B) evidence gathering
C) tax audit
D) audit report preparation
Answer: B
Diff: 3 Type: MC Page Ref: 5
Learning Obj.: 1-1 Identify the components of an audit and explain why there is a demand for
audits
8) One of the reasons that an auditor must be competent is to be able to
A) understand the engagement risks and the criteria used by the client.
B) explain how the bookkeeping should be done to his staff.
C) record the transactions properly for the underlying records.
D) capture the information properly in the computer files.
Answer: A
Diff: 2 Type: MC Page Ref: 6
Learning Obj.: 1-1 Identify the components of an audit and explain why there is a demand for
audits
2
© 2013 Pearson Canada Inc.
, 9) One of the reasons that an auditor must be competent is to be able to
A) select the type and amount of evidence to accumulate.
B) explain how the bookkeeping should be done to his staff.
C) record the transactions properly for the underlying records.
D) capture the information properly in the computer files.
Answer: A
Diff: 2 Type: MC Page Ref: 6
Learning Obj.: 1-1 Identify the components of an audit and explain why there is a demand for
audits
10) It is important for the auditor to be independent because
A) the auditor would not charge a fair rate to the client.
B) the auditor might not be as knowledgeable of the subject matter and the criteria.
C) this will prevent bias in accumulating and evaluating evidence.
D) the Canadian Tax Authorities require that the auditor be independent.
Answer: C
Diff: 2 Type: MC Page Ref: 6
Learning Obj.: 1-1 Identify the components of an audit and explain why there is a demand for
audits
11) Because an external auditor is paid a fee by a client company, he or she
A) is absolutely independent and may conduct an audit.
B) may be sufficiently independent to conduct an audit.
C) is never considered to be independent.
D) must receive approval of the relevant provincial securities commission before conducting an
audit.
Answer: B
Diff: 1 Type: MC Page Ref: 6
Learning Obj.: 1-1 Identify the components of an audit and explain why there is a demand for
audits
12) The independent auditor's report is the
A) communication of the result of the audit to the users.
B) set of audited financial statements.
C) invoice of the auditor detailing the work they have performed.
D) report presented to management about the possible improvements.
Answer: A
Diff: 2 Type: MC Page Ref: 6
Learning Obj.: 1-1 Identify the components of an audit and explain why there is a demand for
audits
3
© 2013 Pearson Canada Inc.
