, Chapter 01 v v
An Introduction to Assurance and Financial Statement Auditing
v v v v v v v
Truev /vFalsev Questions
1. Independencevstandardsvarevrequiredvforvauditsvofvpublicvcompanies,vbutvnotvforvauditsvof
vprivate vcompanies.
True False
2. Decisionv makersv demand v reliablev informationv thatv isv providedv byv accountants.
True False
3. Informationv asymmetryv seldomv occurs.
True False
4. Conflictsvofvinterestvoftenvoccurvbetweenvabsenteevownersvandvmanagers.
True False
5. Auditingv servicesv andv attestationv servicesv arev thevsame.
True False
6. Auditingvisvavtypevofvattestvservice.
True False
7. Testingvallvtransactions vthatvoccurredvduringvthevperiodvisvcostvprohibitive.
True False
MultiplevChoicevQuestions
1-1
Copyrightv©v2017vMcGraw-HillvEducation.vAllvrightsvreserved.vNovreproductionvorvdistributionvwithoutvthevpriorvwrittenvconsentvofvMcGraw-
Hillv Education.
,8. Whyvdovauditorsvgenerallyvusevavsamplingvapproachvtovevidencevgathering?
A. Auditorsvarevexpertsvandvdovnotvneedvtovlookvatvmuchvtovknowvwhethervthevfinancialvst
atementsvarevcorrectvorvnot.
B. Auditorsvmustvbalancevthevcostvofvthevauditvwithvthevneedvforvp
recision.
C. Auditorsvmustvlimitvtheirvexposurevtovtheirvauditeevtovmaintainvi
ndependence.
D. Thevauditor'svrelationshipvwithvthevauditeevisvgenerally vadversarial,vsovthevauditorvwillvn
otvhavevaccessvtovallvofvthevfinancialvinformationvofvthevcompany.
9. Whichvofvthevfollowingvstatementsvbestvdescribes vavrelationshipvbetweenvsamplevsizevandvot
hervelementsvofvauditing?
A. Ifvmaterialityvincreases,vsovwillvthevs
amplevsize.
B. Ifvthevdesiredvlevelvofvassurancevincreases,vsamplevsizesvcanvbevs
maller.
C. Ifvmaterialityvdecreases,vsamplevsizevwillvneedvtovi
ncrease.
D. Therevisvnovrelationshipvbetweenvsamplevsizevandvmaterialityvorvthevdesiredvlevelvo
fvassurance.
10. Whichvofvthevfollowingvstatements vaboutvthevstudyvofvauditingvisvNOTvtrue?
A. Thevstudyvofvauditingvcanvbevvaluablevtovfuturevaccountants vandvbusinessvdecisionvm
akersvwhethervorvnotvtheyvplanvtovbecomevauditors.
B. Thevstudyvofvauditingvfocusesvonvlearningvthevanalyticalvandvlogicalvskillsvnecessary vtovev
aluatevthevrelevancevandvreliabilityvofvinformation.
C. Thevstudyvofvauditingvfocusesvonvlearningvthevrules,vtechniques,vandvcomputations vre
quiredvtovanalyzevfinancial vstatements.
D. Thevstudyvofvauditingvbeginsvwithvthevunderstanding vofvavcoherentvlogicalvframeworkvan
dvtechniques vusefulvforvgatheringvandvanalyzingvevidencevaboutvothers'vassertions.
11. Thevbasicvpurposevofvavfinancialvstatementvauditvisvto
A. Detectv
fraud.
B. Examinevindividualvtransactions vsovthatvthevauditorvmayvcertifyvasvtovt
heirvvalidity.
C. Providevassurancevregardingvwhethervthevauditee'svfinancialvstatementsvarevfa
irlyvstated.
D. Assurevthevconsistent vapplicationvofvcorrectvaccountingv
procedures.
1-2
Copyrightv©v2017vMcGraw-HillvEducation.vAllvrightsvreserved.vNovreproductionvorvdistributionvwithoutvthevpriorvwrittenvconsentvofvMcGraw-
Hillv Education.
, 12. Assurancev servicesv mayv improvev allv ofv thev followingv except
A. Relevanc
ve.
B. Credibilit
vy.
C. Periodicit
vy.
D. Reliabilit
vy.
13. Evidencev isv reliablev ifv it
A. Signalsvthevtruevstatevofvavmanagementva
ssertion.
B. Appliesvtovthevperiodvbeingv
audited.
C. Relatesvtovthevauditvassertionvbeingv
tested.
D. Isvconsistentvwithvmanagement'sv
assertions.
14. Whichvofvthevfollowingvbestvdescribesvthevconceptvofvauditvrisk?
A. Thevriskvofvthevauditorvbeingvsuedvbecausevofvassociationvwithva
nvauditee.
B. Thevriskvthatvthevauditorvwillvprovidevav"clean"vopinionvonvfinancialvstatements vthatva
re,vinvfact,vmaterially vmisstated.
C. Thevoverallvriskvthatvavmaterialvmisstatementvexistsvinvthevfinancialvs
tatements.
D. Thevriskvthatvauditorsvusevauditvprocedures vthatvarevi
nappropriate.
15. Anvauditorvwhovacceptsvanvauditvengagementvandvdoesvnotvpossessvexpertise vwithvr
espectvtovthevbusinessventity'svindustry,vshould
A. Engagevfinancialvexperts vfamiliarvwithvthevnaturevofvthev
businessventity.
B. Obtainvavknowledgevofvmattersvthatvrelatevtovthevnaturevofvtheve
ntity'svbusiness.
C. RefervavsubstantialvportionvofvthevauditvtovanothervCPA,vwhovwillvactvasvthevp
rincipalvauditor.
D. Firstvinformvmanagementvthatvanvunqualifiedvopinionvcannotv
bevissued.
1-3
Copyrightv©v2017vMcGraw-HillvEducation.vAllvrightsvreserved.vNovreproductionvorvdistributionvwithoutvthevpriorvwrittenvconsentvofvMcGraw-
Hillv Education.
An Introduction to Assurance and Financial Statement Auditing
v v v v v v v
Truev /vFalsev Questions
1. Independencevstandardsvarevrequiredvforvauditsvofvpublicvcompanies,vbutvnotvforvauditsvof
vprivate vcompanies.
True False
2. Decisionv makersv demand v reliablev informationv thatv isv providedv byv accountants.
True False
3. Informationv asymmetryv seldomv occurs.
True False
4. Conflictsvofvinterestvoftenvoccurvbetweenvabsenteevownersvandvmanagers.
True False
5. Auditingv servicesv andv attestationv servicesv arev thevsame.
True False
6. Auditingvisvavtypevofvattestvservice.
True False
7. Testingvallvtransactions vthatvoccurredvduringvthevperiodvisvcostvprohibitive.
True False
MultiplevChoicevQuestions
1-1
Copyrightv©v2017vMcGraw-HillvEducation.vAllvrightsvreserved.vNovreproductionvorvdistributionvwithoutvthevpriorvwrittenvconsentvofvMcGraw-
Hillv Education.
,8. Whyvdovauditorsvgenerallyvusevavsamplingvapproachvtovevidencevgathering?
A. Auditorsvarevexpertsvandvdovnotvneedvtovlookvatvmuchvtovknowvwhethervthevfinancialvst
atementsvarevcorrectvorvnot.
B. Auditorsvmustvbalancevthevcostvofvthevauditvwithvthevneedvforvp
recision.
C. Auditorsvmustvlimitvtheirvexposurevtovtheirvauditeevtovmaintainvi
ndependence.
D. Thevauditor'svrelationshipvwithvthevauditeevisvgenerally vadversarial,vsovthevauditorvwillvn
otvhavevaccessvtovallvofvthevfinancialvinformationvofvthevcompany.
9. Whichvofvthevfollowingvstatementsvbestvdescribes vavrelationshipvbetweenvsamplevsizevandvot
hervelementsvofvauditing?
A. Ifvmaterialityvincreases,vsovwillvthevs
amplevsize.
B. Ifvthevdesiredvlevelvofvassurancevincreases,vsamplevsizesvcanvbevs
maller.
C. Ifvmaterialityvdecreases,vsamplevsizevwillvneedvtovi
ncrease.
D. Therevisvnovrelationshipvbetweenvsamplevsizevandvmaterialityvorvthevdesiredvlevelvo
fvassurance.
10. Whichvofvthevfollowingvstatements vaboutvthevstudyvofvauditingvisvNOTvtrue?
A. Thevstudyvofvauditingvcanvbevvaluablevtovfuturevaccountants vandvbusinessvdecisionvm
akersvwhethervorvnotvtheyvplanvtovbecomevauditors.
B. Thevstudyvofvauditingvfocusesvonvlearningvthevanalyticalvandvlogicalvskillsvnecessary vtovev
aluatevthevrelevancevandvreliabilityvofvinformation.
C. Thevstudyvofvauditingvfocusesvonvlearningvthevrules,vtechniques,vandvcomputations vre
quiredvtovanalyzevfinancial vstatements.
D. Thevstudyvofvauditingvbeginsvwithvthevunderstanding vofvavcoherentvlogicalvframeworkvan
dvtechniques vusefulvforvgatheringvandvanalyzingvevidencevaboutvothers'vassertions.
11. Thevbasicvpurposevofvavfinancialvstatementvauditvisvto
A. Detectv
fraud.
B. Examinevindividualvtransactions vsovthatvthevauditorvmayvcertifyvasvtovt
heirvvalidity.
C. Providevassurancevregardingvwhethervthevauditee'svfinancialvstatementsvarevfa
irlyvstated.
D. Assurevthevconsistent vapplicationvofvcorrectvaccountingv
procedures.
1-2
Copyrightv©v2017vMcGraw-HillvEducation.vAllvrightsvreserved.vNovreproductionvorvdistributionvwithoutvthevpriorvwrittenvconsentvofvMcGraw-
Hillv Education.
, 12. Assurancev servicesv mayv improvev allv ofv thev followingv except
A. Relevanc
ve.
B. Credibilit
vy.
C. Periodicit
vy.
D. Reliabilit
vy.
13. Evidencev isv reliablev ifv it
A. Signalsvthevtruevstatevofvavmanagementva
ssertion.
B. Appliesvtovthevperiodvbeingv
audited.
C. Relatesvtovthevauditvassertionvbeingv
tested.
D. Isvconsistentvwithvmanagement'sv
assertions.
14. Whichvofvthevfollowingvbestvdescribesvthevconceptvofvauditvrisk?
A. Thevriskvofvthevauditorvbeingvsuedvbecausevofvassociationvwithva
nvauditee.
B. Thevriskvthatvthevauditorvwillvprovidevav"clean"vopinionvonvfinancialvstatements vthatva
re,vinvfact,vmaterially vmisstated.
C. Thevoverallvriskvthatvavmaterialvmisstatementvexistsvinvthevfinancialvs
tatements.
D. Thevriskvthatvauditorsvusevauditvprocedures vthatvarevi
nappropriate.
15. Anvauditorvwhovacceptsvanvauditvengagementvandvdoesvnotvpossessvexpertise vwithvr
espectvtovthevbusinessventity'svindustry,vshould
A. Engagevfinancialvexperts vfamiliarvwithvthevnaturevofvthev
businessventity.
B. Obtainvavknowledgevofvmattersvthatvrelatevtovthevnaturevofvtheve
ntity'svbusiness.
C. RefervavsubstantialvportionvofvthevauditvtovanothervCPA,vwhovwillvactvasvthevp
rincipalvauditor.
D. Firstvinformvmanagementvthatvanvunqualifiedvopinionvcannotv
bevissued.
1-3
Copyrightv©v2017vMcGraw-HillvEducation.vAllvrightsvreserved.vNovreproductionvorvdistributionvwithoutvthevpriorvwrittenvconsentvofvMcGraw-
Hillv Education.
