, Chapter 01
An Introduction to Assurance and Financial Statement Auditing
True / False Questions
1. Independence standards are required for audits of public companies, but not for audits
of private companies.
True False
2. Decision makers demand reliable information that is provided by accountants.
True False
3. Information asymmetry seldom occurs.
True False
4. Conflicts of interest often occur between absentee owners and managers.
True False
5. Auditing services and attestation services are the same.
True False
6. Auditing is a type of attest service.
True False
7. Testing all transactions that occurred during the period is cost prohibitive.
True False
Multiple Choice Questions
1-1
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
,8. 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
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.
9. 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.
10. 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.
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.
11. 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.
1-2
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
, 12. Assurance services may improve all of the following except
A. Relevanc
e.
B. Credibilit
y.
C. Periodicit
y.
D. Reliabilit
y.
13. 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.
14. 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 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.
15. An auditor who accepts an audit engagement and does not possess expertise with
respect to the business entity's industry, 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.
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.
1-3
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
An Introduction to Assurance and Financial Statement Auditing
True / False Questions
1. Independence standards are required for audits of public companies, but not for audits
of private companies.
True False
2. Decision makers demand reliable information that is provided by accountants.
True False
3. Information asymmetry seldom occurs.
True False
4. Conflicts of interest often occur between absentee owners and managers.
True False
5. Auditing services and attestation services are the same.
True False
6. Auditing is a type of attest service.
True False
7. Testing all transactions that occurred during the period is cost prohibitive.
True False
Multiple Choice Questions
1-1
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
,8. 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
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.
9. 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.
10. 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.
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.
11. 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.
1-2
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
, 12. Assurance services may improve all of the following except
A. Relevanc
e.
B. Credibilit
y.
C. Periodicit
y.
D. Reliabilit
y.
13. 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.
14. 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 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.
15. An auditor who accepts an audit engagement and does not possess expertise with
respect to the business entity's industry, 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.
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.
1-3
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
