C429 Exam One Test Bank Questions and Answers with complete solution
Graded A+
1. Why do auditors generally 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.
C. Auditors must limit their exposure to their auditee to maintain
indepen- dence.
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
compa- ny.: B. Auditors must balance the cost of the audit with the
need for precision.
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.: C. If materiality decreases, sample size will
need to increase.
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
com- putations required to analyze financial statements.
D. The study of auditing begins with the understanding of a coherent logical
framework and techniques useful for gathering and analyzing evidence
about
others' assertions.: C. The study of auditing focuses on learning the
rules, tech- niques, and computations required to analyze financial
statements
4. The basic purpose of a financial statement audit is to
A. Detect fraud.
B. Examine individual transactions so that the auditor may certify as to their
validity.
C. Provide assurance regarding whether the auditee's financial statements
are fairly stated.
D. Assure the consistent application of correct accounting procedures.: C.
Provide assurance regarding whether the auditee's financial
statements are fairly stated.
5. Assurance services may improve all of the following except
A. Relevance.
B. Credibility.
C. Periodicity.
D. Reliability.: C. Periodicity.
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 consistent with management's assertions.: A. Signals the true state
of a management assertion.
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 a "clean" opinion on financial
state- ments that are, in fact, materially misstated.
C. The overall risk that a material misstatement exists in the financial
,state- ments.
D. The risk that auditors use audit procedures that are inappropriate.: B.
The risk that the auditor will provide a "clean" opinion on financial
statements that are, in fact, materially misstated.
E. An auditor who accepts an audit engagement and does not possess exper- tise
with respect to the business entity's industry, should
F. Engage financial experts familiar with the nature of the business entity.
G. Obtain a knowledge of matters that relate to the nature of the
entity's business.
H. Refer a substantial portion of the audit to another CPA, who will act as
the principal auditor.
I. First inform management that an unqualified opinion cannot be issued.:
B. Obtain a knowledge of matters that relate to the nature of the
entity's business
8. For publicly-held companies, which of the following is integrated into
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.: B. The audit of internal controls.
9. 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.: C. Evaluate the integrity of management.
10. 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
position than do the absentee owners (i.e. stockholders).
D. Management likely will not act in the best interests of the absentee
owners.-
: C. Management has more information about the entity's true financial
position than do the absentee owners (i.e. stockholders).
11. Which of the following best describes why an independent auditor is
asked to express an opinion on the fair presentation of financial
statements?
A. It is difficult to prepare financial statements that fairly present a
company's financial position and changes in cash flows without the
expertise of an independent auditor.
B. It is management's responsibility to seek available independent aid in
the appraisal of the financial information shown in its financial statements.
C. The opinion of an independent party is needed because a company is not
likely to be considered objective with respect to its own financial
Graded A+
1. Why do auditors generally 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.
C. Auditors must limit their exposure to their auditee to maintain
indepen- dence.
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
compa- ny.: B. Auditors must balance the cost of the audit with the
need for precision.
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.: C. If materiality decreases, sample size will
need to increase.
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
com- putations required to analyze financial statements.
D. The study of auditing begins with the understanding of a coherent logical
framework and techniques useful for gathering and analyzing evidence
about
others' assertions.: C. The study of auditing focuses on learning the
rules, tech- niques, and computations required to analyze financial
statements
4. The basic purpose of a financial statement audit is to
A. Detect fraud.
B. Examine individual transactions so that the auditor may certify as to their
validity.
C. Provide assurance regarding whether the auditee's financial statements
are fairly stated.
D. Assure the consistent application of correct accounting procedures.: C.
Provide assurance regarding whether the auditee's financial
statements are fairly stated.
5. Assurance services may improve all of the following except
A. Relevance.
B. Credibility.
C. Periodicity.
D. Reliability.: C. Periodicity.
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 consistent with management's assertions.: A. Signals the true state
of a management assertion.
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 a "clean" opinion on financial
state- ments that are, in fact, materially misstated.
C. The overall risk that a material misstatement exists in the financial
,state- ments.
D. The risk that auditors use audit procedures that are inappropriate.: B.
The risk that the auditor will provide a "clean" opinion on financial
statements that are, in fact, materially misstated.
E. An auditor who accepts an audit engagement and does not possess exper- tise
with respect to the business entity's industry, should
F. Engage financial experts familiar with the nature of the business entity.
G. Obtain a knowledge of matters that relate to the nature of the
entity's business.
H. Refer a substantial portion of the audit to another CPA, who will act as
the principal auditor.
I. First inform management that an unqualified opinion cannot be issued.:
B. Obtain a knowledge of matters that relate to the nature of the
entity's business
8. For publicly-held companies, which of the following is integrated into
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.: B. The audit of internal controls.
9. 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.: C. Evaluate the integrity of management.
10. 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
position than do the absentee owners (i.e. stockholders).
D. Management likely will not act in the best interests of the absentee
owners.-
: C. Management has more information about the entity's true financial
position than do the absentee owners (i.e. stockholders).
11. Which of the following best describes why an independent auditor is
asked to express an opinion on the fair presentation of financial
statements?
A. It is difficult to prepare financial statements that fairly present a
company's financial position and changes in cash flows without the
expertise of an independent auditor.
B. It is management's responsibility to seek available independent aid in
the appraisal of the financial information shown in its financial statements.
C. The opinion of an independent party is needed because a company is not
likely to be considered objective with respect to its own financial
