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1. 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 indepen- dence. 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 compa- ny.: B. Auditors must balance the cost of the audit with the need for precision. 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.: C. If materiality decreases, sample size will need to increase. 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 com- putations 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.: C. The study of auditing focuses on learning the rules, tech- niques, and computations required to analyze financial statements
4. 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.: C. Provide assurance regarding whether the auditee's financial statements are fairly stated. 5. Assurance services may improve all of the following except A. Relevance. B. Credibility. C. Periodicity. D. Reliability.: C. Periodicity. 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 consistent with management's assertions.: A. Signals the true state of a management assertion. 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 a "clean" opinion on financial state- ments that are, in fact, materially misstated. C. The overall risk that a material misstatement exists in the financial
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.: C. Evaluate the integrity of management.
10. 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 position than do the absentee owners (i.e. stockholders). D. Management likely will not act in the best interests of the absentee owners.- : C. Management has more information about the entity's true financial position than do the absentee owners (i.e. stockholders). 11. Which of the following best describes why an independent auditor is asked to express an opinion on the fair presentation of financial statements? A. It is difficult to prepare financial statements that fairly present a company's financial position and changes in cash flows without the expertise of an independent auditor. B. It is management's responsibility to seek available independent aid in the appraisal of the financial information shown in its financial statements. C. The opinion of an independent party is needed because a company is not likely to be considered objective with respect to its own financial
statements. D. It is a customary courtesy that all stockholders of a company receive an independent report on management's stewardship in managing the affairs
and evaluating evidence regarding assertions..." What is meant by "systematic process"?
A. All audits involve obtaining the same evidence. B. All audits involve evaluating evidence in the same manner. C. There should be a well-planned approach for obtaining and evaluating evidence. D. All assertions are equally important for all audits.: C. There should be a well-planned approach for obtaining and evaluating evidence
15. Which of the following would best be described as an assurance service? A. Preparing a report representing a client's position during an IRS audit. B. Working with a company to develop a more efficient method of processing financial transactions. C. Offering an opinion concerning the accuracy of statements made on an entity's website relating to its online privacy policies. D. Assisting a company in identifying potential sources of capital for potential acquisitions.: C. Offering an opinion concerning the accuracy of statements made on an entity's website relating to its online privacy policies. 16. 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 state- ment accounts. B. These services all involve obtaining and evaluating evidence. C. These services all involve determining the correspondence of some infor- mation to a set of criteria. D.These services all involve issuing a report.: A. These services are
A. Routine transactions. B. Management assertions that are deemed to be of low risk. C. Only the rights and obligations assertion. D. Management assertions that are deemed to be of high risk.: D. Management assertions that are deemed to be of high risk.
18. 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. B. Provide suggestions for improvement to the company. C. Serve as a basis for setting audit risk and materiality. D. Decide whether to perform an audit for the company.: A. Identify areas of relatively high risk of misstatement and plan the audit accordingly. 19. Which one of the following statements best describes the concept of materiality? A. Materiality is determined by reference to specific quantitative guidelines established by the AICPA. B. Materiality depends only on the dollar amount of an item relative to other items in the financial statements. C. Materiality depends on the nature of an item but not on the dollar amount of the item. D. Materiality is largely a matter of professional judgment.: D.
Materiality is largely a matter of professional judgment.
D. Performing background checks on top management.: D. Performing back- ground checks on top management.
23. The auditor's report is generally addressed to the A. Chief operating officer. B. Securities and Exchange Commission. C. Stockholders of the company. D. Chief financial officer.: C. Stockholders of the company. 24. An auditor would issue an adverse opinion if A. The auditor encounters adverse attitudes toward the auditor on the part of company management. B. A qualified opinion cannot be given because the auditor is not qualified to do so. C. An immaterial misstatement is present. D.The statements taken as a whole do not fairly present the financial condition and results of operations of the company.: D. The statements taken as a whole do not fairly present the financial condition and results of operations of the company. 25. Which of the following is true with respect to the auditor's report? A. The report indicates that the company's financial statements were audited in accordance with generally accepted accounting standards. B. The report indicates that the company's financial statements were audited in accordance with applicable auditing standards. C. The report indicates that the company's financial statements were audited in accordance with the auditor's best judgment.
D. The report indicates that the company's financial statements were audited in accordance with statements issued by the FASB.: B. The report indicates that the company's financial statements were audited in accordance with applicable auditing standards.
26. The Audit Committee consists of A. Members of management. B. A subcommittee of the AICPA who establish the SAS. C. Members of the Board of Directors. D. Appointed government overseers.: C. Members of the Board of Directors. 27. What organization is responsible for setting auditing standards for audits of publicly-traded companies in the U.S.? A. AICPA. B. FASB. C. GASB. D. PCAOB.: D. PCAOB. 28. The Public Company Accounting Oversight Board's role is to A. Conduct the final review of auditors' work before the auditor's opinion is issued. B. Oversee the auditors of public companies in order to protect the interests of investors. C. Conduct audits of governmental entities. D. Sanction auditors who fail to follow GAAS.: B. Oversee the auditors of public companies in order to protect the interests of investors. 29. The authoritative body designed to promulgate standards concerning a CPA's association with audited financial statements of an entity that is re- quired to file financial statements with the SEC is the A. Financial Accounting Standards Board. B. General Accounting Office.
A. Independence with respect to the financial statements and supplementary disclosures. B. Exercising professional care as judged by peer reviewers. C. Proficiency as an auditor, which likely has been acquired from previous experience. D. Objectivity as an auditor as verified by proper supervision.: C. Proficiency as an auditor, which likely has been acquired from previous experience.
34. The first PCAOB standard of reporting requires that, "the report shall state whether the financial statements are presented in accordance with generally accepted accounting principles." This passage requires A. A statement of fact by the auditor. B. An opinion by the auditor. C. An implied measure of fairness. D. An objective measure of compliance.: B. An opinion by the auditor. 35. The accuracy of information included in footnotes accompanying the au- dited financial statements issued by a company whose shares are traded on a stock exchange is the primary responsibility of A. The stock exchange officials. B. The independent auditor. C. The company's management. D. The Securities and Exchange Commission.: C. The company's management. 36. The primary responsibility for the adequacy of disclosures in the financial statements of a publicly held company rests with the A. Partner assigned to the audit engagement. B. Management of the company. C. Auditor in charge of the fieldwork.
D. Securities and Exchange Commission.: B. Management of the company.
37. Typically, an external auditor first gets supervisory experience at what level of authority? A. Associate. B. Senior. C. Manager. D. Partner.: B. Senior. 38. An "in-charge" auditor typically holds the rank of A. Associate. B. Senior.
D. Report on the entity's relative success in attaining profit maximization.: C. Make recommendations for improving performance.
42. 29. Governmental auditing often extends beyond examinations leading to the expression of an opinion on the fairness of financial presentation and includes audits of efficiency, effectiveness, and A. Monetary stimulus. B. Evaluation. C. Accuracy. D. Compliance.: D. Compliance. 43. 30. External auditors are referred to as "external" because A. They report to users outside of the audited entity. B. They are paid by parties outside of the audited entity. C. They are not employees of the entity being audited. D. Their offices are not at the entity's place of business.: C. They are not employees of the entity being audited. 44. 31. Which is not an attribute of an external auditor? A. Independence. B. Auditee advocacy. C. Objectivity. D. Concern for the public interest.: B. Auditee advocacy. 45. Which of the following is NOT a requirement of the Sarbanes-Oxley Act? A. Audit firms cannot provide most types of nonaudit services to their public company auditees.
