Test Bank Complete_
Auditing & Assurance Services: A Systematic Approach 12th Edition, (2022)
By William Messier Jr, Steven Glover And Douglas Prawitt
All Chapters 1-21| Latest Version With Verified Answers| Rated A+
From: [Bestmaxsolutions.stuvia
,PART 1: INTRODUCTION TO ASSURANCE AND FINANCIAL STATEMENT AUDITING _________ 3
Chapter 1: An Introduction to Assurance and Financial Statement Auditing ___________________ 3
Chapter 2: The Financial Statement Auditing Environment ________________________________ 44
PART 2: AUDIT PLANNING AND BASIC AUDITING CONCEPTS _________________________ 97
Chapter 3: Audit Planning, Types of Audit Tests, and Materiality ___________________________ 97
Chapter 4: Risk Assessment ________________________________________________________ 154
Chapter 5: Evidence and Documentation _____________________________________________ 200
PART 3: UNDERSTANDING AND AUDITING INTERNAL CONTROL______________________ 267
Chapter 6: Internal Control in a Financial Statement Audit _______________________________ 267
Chapter 7: Auditing Internal Control over Financial Reporting ____________________________ 340
PART 4: STATISTICAL AND NONSTATISTICAL SAMPLING TOOLS FOR AUDITING ________ 388
Chapter 8: Audit Sampling: An Overview and Application to Tests of Controls _______________ 388
Chapter 9: Audit Sampling: An Application to Substantive Tests of Account Balances _________ 438
PART 5: AUDITING BUSINESS PROCESSES ______________________________________ 477
Chapter 10: Auditing the Revenue Process ____________________________________________ 477
Chapter 11: Auditing the Purchasing Process __________________________________________ 547
Chapter 12: Auditing the Human Resource Management Process _________________________ 612
Chapter 13: Auditing the Inventory Management Process _______________________________ 635
Chapter 14: Auditing the Financing/Investing Process:Prepaid Expenses, Intangible Assets, and
Property, Plant, and Equipment ____________________________________________________ 687
Chapter 15: Auditing the Financing/Investing Process: Long-Term Liabilities, Stockholders’ Equity,
and Income Statement Accounts ____________________________________________________ 734
Chapter 16: Auditing the Financing/Investing Process: Cash and Investments ________________ 776
PART 6: COMPLETING THE AUDIT AND REPORTING RESPONSIBILITIES _______________ 824
Chapter 17: Completing the Audit Engagement ________________________________________ 824
Chapter 18: Reports on Audited Financial Statements ___________________________________ 889
PART 7: PROFESSIONAL RESPONSIBILITIES _______________________________________ 944
Chapter 19: Professional Conduct, Independence, and Quality Management ________________ 944
Chapter 20: Legal Liability ________________________________________________________ 1000
PART 8: ASSURANCE, ATTESTATION, AND INTERNAL AUDITING SERVICES _____________ 1055
Chapter 21: Assurance, Attestation, and Internal Auditing Services _______________________ 1055
,PART 1: INTRODUCTION TO ASSURANCE AND FINANCIAL STATEMENT AUDITING
Chapter 1: An Introduction to Assurance and Financial Statement Auditing
William Messier: Auditing & Assurance Services: A Systematic Approach 12th Edition, (2022) Test Bank
Student Name: __________________________________
MULTIPLE CHOICE
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.
ANS: B
Auditors Often Use Sampling Because They Must Balance Audit Cost With The Need
For Precision. A Full Review Of All Evidence May Not Be Feasible Due To Time And
Budget Constraints, And Sometimes, It’s Not Possible To Use Computer Data Analytic
Approaches. Sampling Helps Auditors Efficiently Assess Evidence Without Reviewing
Every Single Transaction Or Document.
Question Details
AACSB: Communication
AICPA: FN Decision Making
Accessibility: Keyboard Navigation
Difficulty: 1 Easy
AICPA: BB Industry
Bloom’s: Understand
Learning Objective: 01-05 Understand Why Sampling Is Important In An Audit.
Gradable: Automatic
Accessibility: Screen Reader Compatible
Topic: The Audit Process
,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.
ANS: C
The Sample Size Is Closely Related To Materiality And The Desired Level Of
Assurance. If Materiality Decreases, Auditors Need To Sample A Larger Portion Of
Transactions To Ensure They Don’t Miss Small But Significant Errors. A Smaller
Materiality Threshold Increases The Likelihood Of Detecting Smaller Misstatements,
Which Requires A Larger Sample Size.
Question Details
Accessibility: Keyboard Navigation
Bloom’s: Apply
Difficulty: 2 Medium
AICPA: BB Critical Thinking AACSB: Analytical Thinking
AICPA: FN Risk Analysis
Learning Objective: 01-05 Understand Why Sampling Is Important In An Audit.
Gradable: Automatic
Accessibility: Screen Reader Compatible
Topic: The Audit Process
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’ Assertions.
ANS: C
While Auditing Involves Learning Techniques To Evaluate Financial Information, It Is
Not Specifically About Investment Recommendations. The Primary Focus Is On
Assessing The Reliability And Relevance Of Financial Statements Through Analysis,
Evidence Gathering, And Logical Reasoning.
Question Details
AACSB: Communication
AICPA: FN Decision Making
Accessibility: Keyboard Navigation
Learning Objective: 01-01 Understand Why Studying Auditing Can Be Valuable To You
Whether Or Not You
AICPA: BB Industry
Difficulty: 2 Medium
Bloom’s: Analyze
Gradable: Automatic
Accessibility: Screen Reader Compatible
Topic: The Importance For Studying Auditing
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.
ANS: C
Auditing Is A Process Where Evidence Is Objectively Obtained And Evaluated
Regarding Assertions Made By Others, Especially Concerning The Financial Statements
Of A Company. The Goal Is Not Just To Detect Fraud, But To Provide A Reasonable
Assurance That The Financial Statements Are Free From Material Misstatement.
,Question Details
AACSB: Communication
Accessibility: Keyboard Navigation
Bloom’s: Remember
Difficulty: 1 Easy
AICPA: FN Reporting
Learning Objective: 01-03 Know The Basic Definition Of A Financial Statement Audit.
AICPA: BB Critical Thinking
Gradable: Automatic
Accessibility: Screen Reader Compatible
Topic: Auditing, Attest, And Assurance Services Defined
5) Assurance Services May Improve All Of The Following Except:
A) Relevance.
B) Credibility.
C) Periodicity.
D) Reliability.
ANS: C
Assurance Services Primarily Aim To Improve The Relevance, Credibility, And
Reliability Of Information. They Do Not Directly Affect The Periodicity (Frequency) Of
Financial Reporting. Assurance Services Enhance How Trustworthy And Meaningful
The Information Is, Which Is Important For Users' Decision-Making Processes.
Question Details
AACSB: Communication
Accessibility: Keyboard Navigation
Bloom’s: Remember
Difficulty: 1 Easy
AICPA: BB Industry
AICPA: FN Reporting
Learning Objective: 01-03 Know The Basic Definition Of A Financial Statement Audit.
Gradable: Automatic
Accessibility: Screen Reader Compatible
Topic: Auditing, Attest, And Assurance Services Defined
,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.
ANS: A
For Evidence To Be Reliable, It Must Truly Reflect The State Of The Assertion Being
Tested. Reliable Evidence Provides A Clear Indication That The Assertion Is Accurate
Or Not, And It Helps Form The Basis For The Auditor's Conclusions. The Other Options
Focus On Relevance And Sufficiency, Which Are Also Important But Don't Necessarily
Determine Reliability Alone.
Question Details
Accessibility: Keyboard Navigation
Difficulty: 1 Easy
Bloom’s: Understand
Learning Objective: 01-04 Understand The Fundamental Concepts That Underlie
Financial Statement Audi
AICPA: BB Critical Thinking
AACSB: Analytical Thinking
AICPA: FN Measurement
Topic: Fundamental Concepts In Conducting A Financial Statement Audit
Gradable: Automatic
Accessibility: Screen Reader Compatible
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.
ANS: B
Audit Risk Refers To The Chance That An Auditor Might Issue An Incorrect Opinion
About A Set Of Financial Statements, Despite The Presence Of Material Misstatements.
,This Is A Critical Consideration In Audit Planning And Risk Management. The Other
Options Describe Specific Issues But Do Not Capture The Full Scope Of Audit Risk.
Question Details
Accessibility: Keyboard Navigation
Bloom’s: Understand
Difficulty: 2 Medium
Learning Objective: 01-04 Understand The Fundamental Concepts That Underlie
Financial Statement Audi
AICPA: BB Critical Thinking
AACSB: Analytical Thinking
AICPA: FN Risk Analysis
Topic: Fundamental Concepts In Conducting A Financial Statement Audit
Gradable: Automatic
Accessibility: Screen Reader Compatible
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:
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.
ANS: B
When An Auditor Lacks Expertise In The Business Entity's Industry, They Must Acquire
Sufficient Knowledge About The Nature Of The Business And Its Industry. This Is
Essential To Properly Assess Financial Statements And Provide An Informed Opinion.
Engaging External Experts Or Referring The Audit To Another CPA Is Not A Typical
Solution Unless The Expertise Gap Cannot Be Bridged Through Research Or Learning.
Question Details
AICPA: FN Decision Making Accessibility: Keyboard Navigation AICPA: BB Industry
Bloom’s: Apply
Difficulty: 2 Medium
,Learning Objective: 01-06 Be Able To Describe The Basic Financial Statement Auditing
Process And The
AACSB: Ethics
Learning Objective: 01-09 Understand Why Auditing Demands Logic, Reasoning, And
Resourcefulness.
Gradable: Automatic
Accessibility: Screen Reader Compatible
Topic: The Audit Process
Topic: Auditing Demands Logic, Reasoning, Resourcefulness
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
ANS: B
For Publicly Held Companies, The Audit Of Financial Statements Is Integrated With The
Audit Of Internal Controls, As Required By Regulations Such As The Sarbanes-Oxley
Act. This Integrated Approach Helps Ensure That Both The Financial Statements And
The Controls In Place To Produce Those Statements Are Accurate And Reliable. The
Audit Of Internal Controls Is Vital For Ensuring That Financial Reporting Is Not Subject
To Material Misstatement Due To Errors Or Fraud.
Question Details
AACSB: Communication
AICPA: BB Legal
Accessibility: Keyboard Navigation
Bloom’s: Remember
Difficulty: 1 Easy
AICPA: FN Reporting
Learning Objective: 01-06 Be Able To Describe The Basic Financial Statement Auditing
Process And The
Gradable: Automatic
Accessibility: Screen Reader Compatible
Topic: The Audit Process
, 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.
ANS: C
During The Planning Phase Of An Audit, The CPA's Focus Is On Evaluating The
Integrity Of Management. This Includes Assessing Whether Management Is Likely To
Act Honestly And Whether There Is A Risk Of Misstatement In The Financial
Statements. Understanding Management's Integrity Is Crucial Because It Affects The
Audit Approach And The Risk Of Material Misstatement. The Other Actions May Be
Conducted In Later Phases Of The Audit.
Question Details
AACSB: Communication
AICPA: FN Decision Making Accessibility: Keyboard Navigation
Bloom’s: Apply
Difficulty: 2 Medium
Learning Objective: 01-06 Be Able To Describe The Basic Financial Statement Auditing
Process And The
Topic: Sampling
AICPA: BB Resource Management
Gradable: Automatic
Accessibility: Screen Reader Compatible
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.
ANS: C
Auditing & Assurance Services: A Systematic Approach 12th Edition, (2022)
By William Messier Jr, Steven Glover And Douglas Prawitt
All Chapters 1-21| Latest Version With Verified Answers| Rated A+
From: [Bestmaxsolutions.stuvia
,PART 1: INTRODUCTION TO ASSURANCE AND FINANCIAL STATEMENT AUDITING _________ 3
Chapter 1: An Introduction to Assurance and Financial Statement Auditing ___________________ 3
Chapter 2: The Financial Statement Auditing Environment ________________________________ 44
PART 2: AUDIT PLANNING AND BASIC AUDITING CONCEPTS _________________________ 97
Chapter 3: Audit Planning, Types of Audit Tests, and Materiality ___________________________ 97
Chapter 4: Risk Assessment ________________________________________________________ 154
Chapter 5: Evidence and Documentation _____________________________________________ 200
PART 3: UNDERSTANDING AND AUDITING INTERNAL CONTROL______________________ 267
Chapter 6: Internal Control in a Financial Statement Audit _______________________________ 267
Chapter 7: Auditing Internal Control over Financial Reporting ____________________________ 340
PART 4: STATISTICAL AND NONSTATISTICAL SAMPLING TOOLS FOR AUDITING ________ 388
Chapter 8: Audit Sampling: An Overview and Application to Tests of Controls _______________ 388
Chapter 9: Audit Sampling: An Application to Substantive Tests of Account Balances _________ 438
PART 5: AUDITING BUSINESS PROCESSES ______________________________________ 477
Chapter 10: Auditing the Revenue Process ____________________________________________ 477
Chapter 11: Auditing the Purchasing Process __________________________________________ 547
Chapter 12: Auditing the Human Resource Management Process _________________________ 612
Chapter 13: Auditing the Inventory Management Process _______________________________ 635
Chapter 14: Auditing the Financing/Investing Process:Prepaid Expenses, Intangible Assets, and
Property, Plant, and Equipment ____________________________________________________ 687
Chapter 15: Auditing the Financing/Investing Process: Long-Term Liabilities, Stockholders’ Equity,
and Income Statement Accounts ____________________________________________________ 734
Chapter 16: Auditing the Financing/Investing Process: Cash and Investments ________________ 776
PART 6: COMPLETING THE AUDIT AND REPORTING RESPONSIBILITIES _______________ 824
Chapter 17: Completing the Audit Engagement ________________________________________ 824
Chapter 18: Reports on Audited Financial Statements ___________________________________ 889
PART 7: PROFESSIONAL RESPONSIBILITIES _______________________________________ 944
Chapter 19: Professional Conduct, Independence, and Quality Management ________________ 944
Chapter 20: Legal Liability ________________________________________________________ 1000
PART 8: ASSURANCE, ATTESTATION, AND INTERNAL AUDITING SERVICES _____________ 1055
Chapter 21: Assurance, Attestation, and Internal Auditing Services _______________________ 1055
,PART 1: INTRODUCTION TO ASSURANCE AND FINANCIAL STATEMENT AUDITING
Chapter 1: An Introduction to Assurance and Financial Statement Auditing
William Messier: Auditing & Assurance Services: A Systematic Approach 12th Edition, (2022) Test Bank
Student Name: __________________________________
MULTIPLE CHOICE
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.
ANS: B
Auditors Often Use Sampling Because They Must Balance Audit Cost With The Need
For Precision. A Full Review Of All Evidence May Not Be Feasible Due To Time And
Budget Constraints, And Sometimes, It’s Not Possible To Use Computer Data Analytic
Approaches. Sampling Helps Auditors Efficiently Assess Evidence Without Reviewing
Every Single Transaction Or Document.
Question Details
AACSB: Communication
AICPA: FN Decision Making
Accessibility: Keyboard Navigation
Difficulty: 1 Easy
AICPA: BB Industry
Bloom’s: Understand
Learning Objective: 01-05 Understand Why Sampling Is Important In An Audit.
Gradable: Automatic
Accessibility: Screen Reader Compatible
Topic: The Audit Process
,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.
ANS: C
The Sample Size Is Closely Related To Materiality And The Desired Level Of
Assurance. If Materiality Decreases, Auditors Need To Sample A Larger Portion Of
Transactions To Ensure They Don’t Miss Small But Significant Errors. A Smaller
Materiality Threshold Increases The Likelihood Of Detecting Smaller Misstatements,
Which Requires A Larger Sample Size.
Question Details
Accessibility: Keyboard Navigation
Bloom’s: Apply
Difficulty: 2 Medium
AICPA: BB Critical Thinking AACSB: Analytical Thinking
AICPA: FN Risk Analysis
Learning Objective: 01-05 Understand Why Sampling Is Important In An Audit.
Gradable: Automatic
Accessibility: Screen Reader Compatible
Topic: The Audit Process
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’ Assertions.
ANS: C
While Auditing Involves Learning Techniques To Evaluate Financial Information, It Is
Not Specifically About Investment Recommendations. The Primary Focus Is On
Assessing The Reliability And Relevance Of Financial Statements Through Analysis,
Evidence Gathering, And Logical Reasoning.
Question Details
AACSB: Communication
AICPA: FN Decision Making
Accessibility: Keyboard Navigation
Learning Objective: 01-01 Understand Why Studying Auditing Can Be Valuable To You
Whether Or Not You
AICPA: BB Industry
Difficulty: 2 Medium
Bloom’s: Analyze
Gradable: Automatic
Accessibility: Screen Reader Compatible
Topic: The Importance For Studying Auditing
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.
ANS: C
Auditing Is A Process Where Evidence Is Objectively Obtained And Evaluated
Regarding Assertions Made By Others, Especially Concerning The Financial Statements
Of A Company. The Goal Is Not Just To Detect Fraud, But To Provide A Reasonable
Assurance That The Financial Statements Are Free From Material Misstatement.
,Question Details
AACSB: Communication
Accessibility: Keyboard Navigation
Bloom’s: Remember
Difficulty: 1 Easy
AICPA: FN Reporting
Learning Objective: 01-03 Know The Basic Definition Of A Financial Statement Audit.
AICPA: BB Critical Thinking
Gradable: Automatic
Accessibility: Screen Reader Compatible
Topic: Auditing, Attest, And Assurance Services Defined
5) Assurance Services May Improve All Of The Following Except:
A) Relevance.
B) Credibility.
C) Periodicity.
D) Reliability.
ANS: C
Assurance Services Primarily Aim To Improve The Relevance, Credibility, And
Reliability Of Information. They Do Not Directly Affect The Periodicity (Frequency) Of
Financial Reporting. Assurance Services Enhance How Trustworthy And Meaningful
The Information Is, Which Is Important For Users' Decision-Making Processes.
Question Details
AACSB: Communication
Accessibility: Keyboard Navigation
Bloom’s: Remember
Difficulty: 1 Easy
AICPA: BB Industry
AICPA: FN Reporting
Learning Objective: 01-03 Know The Basic Definition Of A Financial Statement Audit.
Gradable: Automatic
Accessibility: Screen Reader Compatible
Topic: Auditing, Attest, And Assurance Services Defined
,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.
ANS: A
For Evidence To Be Reliable, It Must Truly Reflect The State Of The Assertion Being
Tested. Reliable Evidence Provides A Clear Indication That The Assertion Is Accurate
Or Not, And It Helps Form The Basis For The Auditor's Conclusions. The Other Options
Focus On Relevance And Sufficiency, Which Are Also Important But Don't Necessarily
Determine Reliability Alone.
Question Details
Accessibility: Keyboard Navigation
Difficulty: 1 Easy
Bloom’s: Understand
Learning Objective: 01-04 Understand The Fundamental Concepts That Underlie
Financial Statement Audi
AICPA: BB Critical Thinking
AACSB: Analytical Thinking
AICPA: FN Measurement
Topic: Fundamental Concepts In Conducting A Financial Statement Audit
Gradable: Automatic
Accessibility: Screen Reader Compatible
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.
ANS: B
Audit Risk Refers To The Chance That An Auditor Might Issue An Incorrect Opinion
About A Set Of Financial Statements, Despite The Presence Of Material Misstatements.
,This Is A Critical Consideration In Audit Planning And Risk Management. The Other
Options Describe Specific Issues But Do Not Capture The Full Scope Of Audit Risk.
Question Details
Accessibility: Keyboard Navigation
Bloom’s: Understand
Difficulty: 2 Medium
Learning Objective: 01-04 Understand The Fundamental Concepts That Underlie
Financial Statement Audi
AICPA: BB Critical Thinking
AACSB: Analytical Thinking
AICPA: FN Risk Analysis
Topic: Fundamental Concepts In Conducting A Financial Statement Audit
Gradable: Automatic
Accessibility: Screen Reader Compatible
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:
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.
ANS: B
When An Auditor Lacks Expertise In The Business Entity's Industry, They Must Acquire
Sufficient Knowledge About The Nature Of The Business And Its Industry. This Is
Essential To Properly Assess Financial Statements And Provide An Informed Opinion.
Engaging External Experts Or Referring The Audit To Another CPA Is Not A Typical
Solution Unless The Expertise Gap Cannot Be Bridged Through Research Or Learning.
Question Details
AICPA: FN Decision Making Accessibility: Keyboard Navigation AICPA: BB Industry
Bloom’s: Apply
Difficulty: 2 Medium
,Learning Objective: 01-06 Be Able To Describe The Basic Financial Statement Auditing
Process And The
AACSB: Ethics
Learning Objective: 01-09 Understand Why Auditing Demands Logic, Reasoning, And
Resourcefulness.
Gradable: Automatic
Accessibility: Screen Reader Compatible
Topic: The Audit Process
Topic: Auditing Demands Logic, Reasoning, Resourcefulness
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
ANS: B
For Publicly Held Companies, The Audit Of Financial Statements Is Integrated With The
Audit Of Internal Controls, As Required By Regulations Such As The Sarbanes-Oxley
Act. This Integrated Approach Helps Ensure That Both The Financial Statements And
The Controls In Place To Produce Those Statements Are Accurate And Reliable. The
Audit Of Internal Controls Is Vital For Ensuring That Financial Reporting Is Not Subject
To Material Misstatement Due To Errors Or Fraud.
Question Details
AACSB: Communication
AICPA: BB Legal
Accessibility: Keyboard Navigation
Bloom’s: Remember
Difficulty: 1 Easy
AICPA: FN Reporting
Learning Objective: 01-06 Be Able To Describe The Basic Financial Statement Auditing
Process And The
Gradable: Automatic
Accessibility: Screen Reader Compatible
Topic: The Audit Process
, 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.
ANS: C
During The Planning Phase Of An Audit, The CPA's Focus Is On Evaluating The
Integrity Of Management. This Includes Assessing Whether Management Is Likely To
Act Honestly And Whether There Is A Risk Of Misstatement In The Financial
Statements. Understanding Management's Integrity Is Crucial Because It Affects The
Audit Approach And The Risk Of Material Misstatement. The Other Actions May Be
Conducted In Later Phases Of The Audit.
Question Details
AACSB: Communication
AICPA: FN Decision Making Accessibility: Keyboard Navigation
Bloom’s: Apply
Difficulty: 2 Medium
Learning Objective: 01-06 Be Able To Describe The Basic Financial Statement Auditing
Process And The
Topic: Sampling
AICPA: BB Resource Management
Gradable: Automatic
Accessibility: Screen Reader Compatible
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.
ANS: C
