TEST BANK
Auditing & Assurance Services: A Systematic Approach
DOUGLAS F. PRAWITT WILLIAM F. MESSIER JR, STEVEN M. GLOVER
12TH Edition
,Chapter 01 Answers Included ✅
i
12e
1) Why do auditors often use a sampling approach to evidence gathering?
A) Auditors are experts and do not need to look at much to know whether the
financial statements are correct or not.
B) Auditors must balance the cost of the audit with the need for precision and
for some types of evidence, computer data analytic approaches can’t be used.
C) Auditors must limit their exposure to their auditee to maintain independence.
D) The auditor's relationship with the auditee is generally adversarial, so the
auditor will not have access to all of the financial information of the company.
2) Which of the following statements best describes a relationship between
sample size and other elements of auditing?
A) If materiality increases, so will the sample size.
B) If the desired level of assurance increases, sample sizes can be smaller.
C) If materiality decreases, sample size will need to increase.
D) There is no relationship between sample size and materiality or the
desired level of assurance.
3) Which of the following statements about the study of auditing is NOT true?
A) The study of auditing can be valuable to future accountants and
business decision makers whether or not they plan to become auditors.
B) The study of auditing focuses on learning the analytical and logical skills
necessary to evaluate the relevance and reliability of information.
C) The study of auditing focuses on learning the rules, techniques, and
computations required to analyze financial statements for making investment
recommendations.
D) The study of auditing begins with the understanding of a coherent logical
framework and techniques useful for gathering and analyzing evidence about others’
1
,assertions.
4) The basic definition of auditing essentially indicates that, overall, auditing is a process to:
A) detect fraud.
B) examine individual transactions so that the auditor may certify as to their
validity.
C) objectively obtain and evaluate evidence regarding assertions made by
another party.
D) assure the consistent application of correct accounting procedures.
5) Assurance services may improve all of the following except:
A) relevance.
B) credibility.
C) periodicity.
D) reliability.
6) Evidence is reliable if it:
A) signals the true state of a management assertion.
B) applies to the period being audited.
C) relates to the audit assertion being tested.
D) is sufficient to justify a conclusion.
7) Which of the following best describes the concept of audit risk?
A) The risk of the auditor being sued because of association with an auditee.
B) The risk that the auditor will provide an inappropriate opinion on
financial statements that are, in fact, materially misstated.
C) The overall risk that a material misstatement exists in the financial
statements.
D) The risk that auditors use audit procedures that are inappropriate.
8) An auditor who accepts an audit engagement and does not possess expertise with
respect to the business entity’s industry at that point, should:
2
, A) engage financial experts familiar with the nature of the business entity.
B) obtain a knowledge of matters that relate to the nature of the entity’s
business and the industry in which it operates.
C) refer a substantial portion of the audit to another CPA, who will act as the
principal auditor.
D) first inform management that an unqualified opinion cannot be issued.
9) For publicly-held companies, which of the following is integrated with the
audit of financial statements?
A) budgetary information audit
B) the audit of internal controls
C) audit of management forecasts
D) audit of interim financial statements
10) During the first phase of an audit, a CPA most likely would:
A) identify specific internal control activities that are likely to prevent fraud.
B) evaluate the reasonableness of the company’s accounting estimates.
C) evaluate the integrity of management.
D) inquire of the company's attorney as to whether any unrecorded claims are
probable or asserted.
11) In the context of agency theory, information asymmetry refers to the idea that:
A) information can vary in its reliability.
B) information can vary in its relevance.
C) management has more information about the entity’s true financial
results and position than do the absentee owners (i.e. stockholders).
D) management likely will not act in the best interests of the absentee owners.
3
Auditing & Assurance Services: A Systematic Approach
DOUGLAS F. PRAWITT WILLIAM F. MESSIER JR, STEVEN M. GLOVER
12TH Edition
,Chapter 01 Answers Included ✅
i
12e
1) Why do auditors often use a sampling approach to evidence gathering?
A) Auditors are experts and do not need to look at much to know whether the
financial statements are correct or not.
B) Auditors must balance the cost of the audit with the need for precision and
for some types of evidence, computer data analytic approaches can’t be used.
C) Auditors must limit their exposure to their auditee to maintain independence.
D) The auditor's relationship with the auditee is generally adversarial, so the
auditor will not have access to all of the financial information of the company.
2) Which of the following statements best describes a relationship between
sample size and other elements of auditing?
A) If materiality increases, so will the sample size.
B) If the desired level of assurance increases, sample sizes can be smaller.
C) If materiality decreases, sample size will need to increase.
D) There is no relationship between sample size and materiality or the
desired level of assurance.
3) Which of the following statements about the study of auditing is NOT true?
A) The study of auditing can be valuable to future accountants and
business decision makers whether or not they plan to become auditors.
B) The study of auditing focuses on learning the analytical and logical skills
necessary to evaluate the relevance and reliability of information.
C) The study of auditing focuses on learning the rules, techniques, and
computations required to analyze financial statements for making investment
recommendations.
D) The study of auditing begins with the understanding of a coherent logical
framework and techniques useful for gathering and analyzing evidence about others’
1
,assertions.
4) The basic definition of auditing essentially indicates that, overall, auditing is a process to:
A) detect fraud.
B) examine individual transactions so that the auditor may certify as to their
validity.
C) objectively obtain and evaluate evidence regarding assertions made by
another party.
D) assure the consistent application of correct accounting procedures.
5) Assurance services may improve all of the following except:
A) relevance.
B) credibility.
C) periodicity.
D) reliability.
6) Evidence is reliable if it:
A) signals the true state of a management assertion.
B) applies to the period being audited.
C) relates to the audit assertion being tested.
D) is sufficient to justify a conclusion.
7) Which of the following best describes the concept of audit risk?
A) The risk of the auditor being sued because of association with an auditee.
B) The risk that the auditor will provide an inappropriate opinion on
financial statements that are, in fact, materially misstated.
C) The overall risk that a material misstatement exists in the financial
statements.
D) The risk that auditors use audit procedures that are inappropriate.
8) An auditor who accepts an audit engagement and does not possess expertise with
respect to the business entity’s industry at that point, should:
2
, A) engage financial experts familiar with the nature of the business entity.
B) obtain a knowledge of matters that relate to the nature of the entity’s
business and the industry in which it operates.
C) refer a substantial portion of the audit to another CPA, who will act as the
principal auditor.
D) first inform management that an unqualified opinion cannot be issued.
9) For publicly-held companies, which of the following is integrated with the
audit of financial statements?
A) budgetary information audit
B) the audit of internal controls
C) audit of management forecasts
D) audit of interim financial statements
10) During the first phase of an audit, a CPA most likely would:
A) identify specific internal control activities that are likely to prevent fraud.
B) evaluate the reasonableness of the company’s accounting estimates.
C) evaluate the integrity of management.
D) inquire of the company's attorney as to whether any unrecorded claims are
probable or asserted.
11) In the context of agency theory, information asymmetry refers to the idea that:
A) information can vary in its reliability.
B) information can vary in its relevance.
C) management has more information about the entity’s true financial
results and position than do the absentee owners (i.e. stockholders).
D) management likely will not act in the best interests of the absentee owners.
3
