1. An auditor who accepts an audit engagement and does not possess expertise with respect to the business entity’s industry, should A. Obtain a knowledge of matters that relate to the nature of the entity’s business.
2. An auditor would issue an adverse opinion if A. The statements taken as a whole do not fairly present the financial condition and results of operations of the company.
3. An investor is reading the financial statements of the Stankey Corporation and observes that the statements are accompanied by an auditor’s unqualified report. From this, the investor may conclude that A. Any disputes over significant accounting issues have been settled to the auditor’s satisfaction.
4. Assurance services may improve all of the following except A. Periodicity
5. Auditors are most likely to use the most rigorous audit procedures to examine A. Management assertions that are deemed to be of high risk
6. Before accepting an engagement to audit a new client, an auditor is required to A. Make inquiries of the predecessor auditor.
7. During the first phase of an audit, a CPA most likely would A. Evaluate the integrity of management
8. Evidence is reliable if it is A. Signals the true state of a management assertion
9. For publicly-held companies, which of the following is integrated into the audit of financial statements? A. The audit of internal controls.
10. In the context of agency theory, information asymmetry refers to the idea that A. Management has more information about the entity’s true financial position than do the absentee owners (i.e. stockholders).
11. Independent auditing can best be described as A. A discipline that attests to the results of accounting and other functional operations and data.
12. International Standards on Auditing are established by the A. International Auditing and Assurance Standards Board
13. Preliminary engagement activities include A. Performing background checks on top management.
14. T/F: Auditing is a type of attest service. A. True
15. T/F: Auditing services and attestation services are the same. A. False
16. T/F: Conflicts of interest often occur between absentee owners and managers. A. True
17. T/F: Decision makers demand reliable information that is provided by accountants. A. True
18. T/F: Independence standards are required for audits of public companies, but not for audits of private companies. A. False
19. T/F: Information asymmetry seldom occurs. A. False
20. T/F: Testing all transactions that occurred during the period is cost prohibitive. A. True
21. The auditor’s report is generally addressed to the A. Stockholders of the company
22. The basic purpose of a financial statement audit is to A. Provide assurance regarding whether the client’s financial statements are fairly stated
23. The definition of auditing refers to auditing as a “systematic process of objectively obtaining and evaluating evidence regarding assertions…” What is meant by “systematic process”? A. There should be a well-planned approach for obtaining and evaluating evidence.
24. The general group of U.S. generally accepted auditing standards includes a requirement that A. Due professional care be exercised by the auditor.
25. What is the general character of the three generally accepted auditing standards classified as standards of field work? A. The criteria of audit planning and evidence gathering.
26. When obtaining an understanding of the entity and its environment, the auditor should obtain an understanding of internal controls primarily to A. Identify areas of relatively high risk of misstatement and plan the audit accordingly.
27. Which of the following best describes a relationship between sample size and other elements of auditing? A. If materiality decreases, sample size will need to increase.
28. Which of the following best describes the concept of audit risk? A. The risk that the auditor will provide an unqualified opinion on financial statements that are, in face, materially misstated.
29. Which of the following best describes the fundamental, underlying reason for why there is demand for an independent auditor to report on financial statements? A. Different interests may exist between the company preparing the statements and the parties using the statements.
30. Which of the following best describes why an independent auditor is asked to express an opinion on the fair presentation of financial statements? A. The opinion of an independent party is needed because a company may not be objective with respect to its own financial statements.
31. Which of the following best describes why publicly-traded corporations follow the practice of having the external auditor appointed by the board of directors or elected by the stockholders? A. To enhance auditor independence from the management of the corporation.
32. Which of the following is not a concept that is included in the scope paragraph of the auditor’s report? A. The conformance of the financial statements with GAAP.
33. Which of the following is true with respect to the auditor’s report? A. The report indicates that the client’s financial statements were audited in accordance with applicable auditing standards.
34. Which of the following statements about the study of auditing is NOT true? A. The study of auditing focuses on learning the rules, techniques, and computations required to analyze financial statements.
35. Which of the following statements is not true with respect to assurance, attest, and audit services? A. These services are applied only to financial statements and financial statement accounts.
36. Which one of the following statements best describes the concept of materiality? A. Materiality is largely a matter of professional judgement.
37. Why do auditors generally use a sampling approach to evidence gathering? A. Auditors must balance the cost of the audit with the need for precision.
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