TEST BANK
Auditing: A Business Risk Approach
Larry E. Rittenberg, Karla Johnstone & Audrey A. Gramling:
8th International Edition
JN
U
R
SE
, Table of Contents
1. Auditing: Integral to the Economy
2. Corporate Governance and Audits
3. Judgmental and Ethical Decision-Making Frameworks and Professional Standards
4. Audit Risk, Business Risk, and Audit Planning
5. Internal Control over Financial Reporting
6. Performing an Integrated Audit
7. A Framework for Audit Evidence
8. Tools Used in Gathering Audit Evidence
9. Auditing for Fraud
10.Auditing Revenue and Related Accounts
11.Audit of Acquisition and Payment Cycle and Inventory
12.Auditing Cash and Other Liquid Assets
13.Audit of Long-Lived Assets and Related Expense Accounts
14.Audit of Longer-Term Liabilities, Equity, Acquisitions, and Related-Entity
Transactions
JN
15.Ensuring Audit Quality in Completing the Audit
16.Communicating Audit and Attestation Results
17.Professional Liability
18.Advanced Topics Concerning Complex Auditing Judgments
U
19.ACL Appendix
20.Index
R
SE
© 2012 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from
the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
,Chapter 1: Auditing: Integral to the Economy
TRUE/FALSE
1. The need for assurance services arises because the interests of the users of information may be
different from that of the interests of those responsible for providing information.
ANS: T PTS: 1 OBJ: Auditing Defined
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
2. An audit of financial statements is a form of attestation service.
ANS: T PTS: 1 OBJ: Auditing Defined
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
3. Independence is an attribute necessary to perform assurance services.
ANS: T PTS: 1 OBJ: Scope of Services
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
4. A bank using Milton Company's financial statements to determine the creditworthiness of a
potential loan to Milton is a good example of the need for unbiased reporting.
ANS: T PTS: 1 OBJ: Auditing Defined
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
JN
5. Independence is only required for assurance service providers.
ANS: T PTS: 1 OBJ: Scope of Services
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
6. A CPA automatically qualifies as an assurance provider in all areas of business.
ANS: F PTS: 1 OBJ: Scope of Services
U
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
7. Attestation services are a subset of assurance services and always involve a report that goes to a
third party.
R
ANS: T PTS: 1 OBJ: Scope of Services
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
SE
1-1
, 8. The American Institute of Certified Public Accountants has the primary authority to set auditing
standards for public companies.
ANS: F PTS: 1 OBJ: Public Company Auditing Standards
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
9. The audit function is unique because it exists to perform services on a "client" on behalf of
shareholders, directors and other parties.
ANS: T PTS: 1 OBJ: Auditing Defined
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
10. Auditing is the process of attesting to assertions about economic actions and events.
ANS: T PTS: 1 OBJ: Auditing Defined
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
11. Auditing is the process of verifying the accuracy of the financial statements.
ANS: F PTS: 1 OBJ: Auditing Defined
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
12. Internal auditing only provides assurance services to clients.
ANS: F PTS: 1 OBJ: Internal and Governmental Auditors
JN
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
13. Auditing primarily exists because users need unbiased information on which to assess
management performance and make economic decisions.
ANS: T PTS: 1 OBJ: Auditing Defined
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
U
14. The degree of confidence that users place on management's financial statements is higher than
that placed on audited financial statements because few users have direct knowledge of the
company's operations and management is the most knowledgeable about operations.
R
ANS: F PTS: 1 OBJ: Public Company Auditing Standards
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
15. U.S. nonpublic companies will have an audit performed in accordance with generally accepted
SE
auditing standards that have been promulgated by the PCAOB.
ANS: F PTS: 1 OBJ: Public Company Auditing Standards
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
16. An assertion is a statement about an action, event, condition, or performance over a specified
time period.
ANS: T PTS: 1 OBJ: Opinion Formation Process
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
17. Management is required to comment on the fairness of the company's financial presentation.
This reduces the auditor's legal responsibility for the opinion rendered on the financial
statements.
ANS: F PTS: 1 OBJ: Auditing Defined
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
18. Audited financial statements should be free from all errors and fraud.
ANS: F PTS: 1 OBJ: Public Company Auditing Standards
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
19. Audited financial statements should be presented fairly according to the substance of GAAP.
ANS: T PTS: 1 OBJ: Professional and Regulatory Organizations
© 2012 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from
the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Auditing: A Business Risk Approach
Larry E. Rittenberg, Karla Johnstone & Audrey A. Gramling:
8th International Edition
JN
U
R
SE
, Table of Contents
1. Auditing: Integral to the Economy
2. Corporate Governance and Audits
3. Judgmental and Ethical Decision-Making Frameworks and Professional Standards
4. Audit Risk, Business Risk, and Audit Planning
5. Internal Control over Financial Reporting
6. Performing an Integrated Audit
7. A Framework for Audit Evidence
8. Tools Used in Gathering Audit Evidence
9. Auditing for Fraud
10.Auditing Revenue and Related Accounts
11.Audit of Acquisition and Payment Cycle and Inventory
12.Auditing Cash and Other Liquid Assets
13.Audit of Long-Lived Assets and Related Expense Accounts
14.Audit of Longer-Term Liabilities, Equity, Acquisitions, and Related-Entity
Transactions
JN
15.Ensuring Audit Quality in Completing the Audit
16.Communicating Audit and Attestation Results
17.Professional Liability
18.Advanced Topics Concerning Complex Auditing Judgments
U
19.ACL Appendix
20.Index
R
SE
© 2012 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from
the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
,Chapter 1: Auditing: Integral to the Economy
TRUE/FALSE
1. The need for assurance services arises because the interests of the users of information may be
different from that of the interests of those responsible for providing information.
ANS: T PTS: 1 OBJ: Auditing Defined
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
2. An audit of financial statements is a form of attestation service.
ANS: T PTS: 1 OBJ: Auditing Defined
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
3. Independence is an attribute necessary to perform assurance services.
ANS: T PTS: 1 OBJ: Scope of Services
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
4. A bank using Milton Company's financial statements to determine the creditworthiness of a
potential loan to Milton is a good example of the need for unbiased reporting.
ANS: T PTS: 1 OBJ: Auditing Defined
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
JN
5. Independence is only required for assurance service providers.
ANS: T PTS: 1 OBJ: Scope of Services
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
6. A CPA automatically qualifies as an assurance provider in all areas of business.
ANS: F PTS: 1 OBJ: Scope of Services
U
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
7. Attestation services are a subset of assurance services and always involve a report that goes to a
third party.
R
ANS: T PTS: 1 OBJ: Scope of Services
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
SE
1-1
, 8. The American Institute of Certified Public Accountants has the primary authority to set auditing
standards for public companies.
ANS: F PTS: 1 OBJ: Public Company Auditing Standards
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
9. The audit function is unique because it exists to perform services on a "client" on behalf of
shareholders, directors and other parties.
ANS: T PTS: 1 OBJ: Auditing Defined
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
10. Auditing is the process of attesting to assertions about economic actions and events.
ANS: T PTS: 1 OBJ: Auditing Defined
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
11. Auditing is the process of verifying the accuracy of the financial statements.
ANS: F PTS: 1 OBJ: Auditing Defined
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
12. Internal auditing only provides assurance services to clients.
ANS: F PTS: 1 OBJ: Internal and Governmental Auditors
JN
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
13. Auditing primarily exists because users need unbiased information on which to assess
management performance and make economic decisions.
ANS: T PTS: 1 OBJ: Auditing Defined
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
U
14. The degree of confidence that users place on management's financial statements is higher than
that placed on audited financial statements because few users have direct knowledge of the
company's operations and management is the most knowledgeable about operations.
R
ANS: F PTS: 1 OBJ: Public Company Auditing Standards
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
15. U.S. nonpublic companies will have an audit performed in accordance with generally accepted
SE
auditing standards that have been promulgated by the PCAOB.
ANS: F PTS: 1 OBJ: Public Company Auditing Standards
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
16. An assertion is a statement about an action, event, condition, or performance over a specified
time period.
ANS: T PTS: 1 OBJ: Opinion Formation Process
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
17. Management is required to comment on the fairness of the company's financial presentation.
This reduces the auditor's legal responsibility for the opinion rendered on the financial
statements.
ANS: F PTS: 1 OBJ: Auditing Defined
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
18. Audited financial statements should be free from all errors and fraud.
ANS: F PTS: 1 OBJ: Public Company Auditing Standards
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
19. Audited financial statements should be presented fairly according to the substance of GAAP.
ANS: T PTS: 1 OBJ: Professional and Regulatory Organizations
© 2012 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from
the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
