PRINCIPLES TO AUDITING EXAM
QUESTIONS AND ANSWERS GRADED A+
2025/2026
Chapter 6 -
Explain the concept of professional skepticism and identify its two elements.
Auditing standards
______________that the audit be planned and performed with an attitude of professional
skepticism in___________ aspects of the engagement, recognizing the possibility that
_________________________________ could exist_________________ of the auditor's prior
experience with the integrity and honesty of client management and those charged with
governance. - ANS -requires
-all
-a material misstatement
-regardless
Identify the two elements of professional skepticism. - ANS (1) A questioning mind and (2) A
critical assessment of audit evidence
1 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
,Describe what is meant by the cycle approach to auditing. - ANS The cycle approach is a
method of dividing the audit such that closely related types of transactions and account
balances are included in the same cycle.
What are the advantages of dividing the audit into different cycles? - ANS 1. To divide the
audit into more manageable parts.
2. To assign tasks to different members of the audit team.
3.To keep closely related parts of the audit together.
State the objective of the audit of financial statements. In general terms, how do auditors meet
that objective?
The auditor's objective of the audit of the financial statements is the _____________
______________________________ of the financial position, results of operations, and cash
flows in conformity with applicable accounting standards. The auditor meets that objective by
______________________________________
_________________________________________
whether management's _____________________ regarding the financial statements are fairly
stated. - ANS 1. expression of an opinion on the fairness
2. accumulating sufficient appropriate evidence to determine
3. assertions
Describe management's responsibility for the financial statements. - ANS Management's
responsibility is to adopt sound accounting policies, maintain adequate internal control, and
make fair representations in the financial statements.
Do you believe the CEO and CFO of a public company perceive an even greater responsibility as
a result of the Sarbanes-Oxley Act requirement to certify the financial statements submitted to
the SEC?
Requiring the CEO and CFO of a public company to personally certify and provide assurance on
the financial statements and internal controls is likely to result in ________________________
______________________________________________________________________________
______.
2 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
, The Sarbanes-Oxley Act ______
______________________________________________________________________________
______
for anyone who knowingly falsely certifies those statements. - ANS 1. them taking their
responsibility more seriously and taking additional precautions to gain comfort with the fairness
of the representations.
2. can impose criminal penalties, including significant monetary fines or imprisonment for up to
20 years
Distinguish between the terms errors and fraud. What is the auditor's responsibility for finding
each? - ANS An error is an unintentional misstatement of the financial statements. Fraud
represents an intentional misstatement. The auditor is responsible for obtaining reasonable
assurance that material misstatements in the financial statements are detected, whether those
misstatements are due to errors or fraud.
Explain the auditor's responsibility to consider compliance with laws and regulations. How does
this responsibility differ for laws and regulations that have a direct effect on the financial
statements compared to other laws and regulations that do not have a direct effect? -
ANS The auditor should obtain sufficient appropriate evidence regarding material amounts
and disclosures that are directly affected by laws and regulations. For example, the auditor
should perform tests to identify if there have been any material violations of federal or state tax
laws. However, the auditor should inquire of management and inspect correspondence with
relevant licensing and regulatory agencies to identify noncompliance that may have a material
effect on the financial statements.
What are the six elements of professional skepticism? - ANS (1) Questioning mindset;
(2) Suspension of judgment;
(3) Search for knowledge;
4) Interpersonal understanding; (5) Autonomy; and
(6) Self-esteem
Describe two of those six elements. - ANS 1) Questioning mindset - a disposition to inquiry
with some sense of doubt;
(2) Interpersonal understanding - recognition that people's motivations and perceptions can
lead them to provide biased or misleading information.
3 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
QUESTIONS AND ANSWERS GRADED A+
2025/2026
Chapter 6 -
Explain the concept of professional skepticism and identify its two elements.
Auditing standards
______________that the audit be planned and performed with an attitude of professional
skepticism in___________ aspects of the engagement, recognizing the possibility that
_________________________________ could exist_________________ of the auditor's prior
experience with the integrity and honesty of client management and those charged with
governance. - ANS -requires
-all
-a material misstatement
-regardless
Identify the two elements of professional skepticism. - ANS (1) A questioning mind and (2) A
critical assessment of audit evidence
1 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
,Describe what is meant by the cycle approach to auditing. - ANS The cycle approach is a
method of dividing the audit such that closely related types of transactions and account
balances are included in the same cycle.
What are the advantages of dividing the audit into different cycles? - ANS 1. To divide the
audit into more manageable parts.
2. To assign tasks to different members of the audit team.
3.To keep closely related parts of the audit together.
State the objective of the audit of financial statements. In general terms, how do auditors meet
that objective?
The auditor's objective of the audit of the financial statements is the _____________
______________________________ of the financial position, results of operations, and cash
flows in conformity with applicable accounting standards. The auditor meets that objective by
______________________________________
_________________________________________
whether management's _____________________ regarding the financial statements are fairly
stated. - ANS 1. expression of an opinion on the fairness
2. accumulating sufficient appropriate evidence to determine
3. assertions
Describe management's responsibility for the financial statements. - ANS Management's
responsibility is to adopt sound accounting policies, maintain adequate internal control, and
make fair representations in the financial statements.
Do you believe the CEO and CFO of a public company perceive an even greater responsibility as
a result of the Sarbanes-Oxley Act requirement to certify the financial statements submitted to
the SEC?
Requiring the CEO and CFO of a public company to personally certify and provide assurance on
the financial statements and internal controls is likely to result in ________________________
______________________________________________________________________________
______.
2 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
, The Sarbanes-Oxley Act ______
______________________________________________________________________________
______
for anyone who knowingly falsely certifies those statements. - ANS 1. them taking their
responsibility more seriously and taking additional precautions to gain comfort with the fairness
of the representations.
2. can impose criminal penalties, including significant monetary fines or imprisonment for up to
20 years
Distinguish between the terms errors and fraud. What is the auditor's responsibility for finding
each? - ANS An error is an unintentional misstatement of the financial statements. Fraud
represents an intentional misstatement. The auditor is responsible for obtaining reasonable
assurance that material misstatements in the financial statements are detected, whether those
misstatements are due to errors or fraud.
Explain the auditor's responsibility to consider compliance with laws and regulations. How does
this responsibility differ for laws and regulations that have a direct effect on the financial
statements compared to other laws and regulations that do not have a direct effect? -
ANS The auditor should obtain sufficient appropriate evidence regarding material amounts
and disclosures that are directly affected by laws and regulations. For example, the auditor
should perform tests to identify if there have been any material violations of federal or state tax
laws. However, the auditor should inquire of management and inspect correspondence with
relevant licensing and regulatory agencies to identify noncompliance that may have a material
effect on the financial statements.
What are the six elements of professional skepticism? - ANS (1) Questioning mindset;
(2) Suspension of judgment;
(3) Search for knowledge;
4) Interpersonal understanding; (5) Autonomy; and
(6) Self-esteem
Describe two of those six elements. - ANS 1) Questioning mindset - a disposition to inquiry
with some sense of doubt;
(2) Interpersonal understanding - recognition that people's motivations and perceptions can
lead them to provide biased or misleading information.
3 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
