Audit & Assurance Exam Ch.1 Practice Questions
with Accurate Solutions
1.23 Which of the following would be considered an assurance engagement?
a. Giving an opinion on a prize promoter's claims about the amount of sweepstakes prizes awarded in
the past.
b. Giving an opinion on the conformity of the financial statements of a university with generally
accepted accounting principles.
c. Giving an opinion on the fair presentation of a newspaper's circulation data.
d. Giving assurance about the average drive length achieved by golfers with a client's golf balls.
e. All of the above. - Answer e. All of the above.
1.24 It is always a good idea for auditors to begin an audit with the professional skepticism characterized
by the assumption that
a. A potential conflict of interest always exists between the auditor and the management of the
enterprise under audit.
b. In audits of financial statements, the auditor acts exclusively in the capacity of an auditor.
c. The professional status of the independent auditor imposes commensurate professional obligations.
d. Financial statements and financial data are verifiable. - Answer a. A potential conflict of interest
always exists between the auditor and the management of the enterprise under audit.
1.25 In an attestation engagement, a CPA practitioner is engaged to
a. Compile a company's financial forecast based on management's assumptions without expressing any
form of assurance.
b. Prepare a written report containing a conclusion about the reliability of a management assertion.
c. Prepare a tax return using information the CPA has not audited or reviewed.
d. Give expert testimony in court on particular facts in a corporate income tax controversy. - Answer b.
Prepare a written report containing a conclusion about the reliability of a management assertion.
1.26 A determination of cost savings obtained by outsourcing cafeteria services is most likely to be an
objective of
a. Environmental auditing.
, b. Financial auditing.
c. Compliance auditing.
d. Operational auditing. - Answer d. Operational auditing.
1.27 The primary difference between operational auditing and financial auditing is that in operational
auditing
a. The operational auditor is not concerned with whether the audited activity is generating information
in compliance with financial accounting standards.
b. The operational auditor is seeking to help management use resources in the most effective manner
possible.
c. The operational auditor starts with the financial statements of an activity being audited and works
backward to the basic processes involved in producing them.
d. The operational auditor can use analytical skills and tools that are not necessary in financial auditing. -
Answer b. The operational auditor is seeking to help management use resources in the most effective
manner possible.
1.28 According to the AICPA, the purpose of an audit of financial statements is to
a. Enhance the degree of confidence that intended users can place in the financial statements.
b. Express an opinion on the fairness with which they present financial position, results of operations,
and cash flows in conformity with accounting standards promulgated by the Financial Accounting
Standards Board.
c. Express an opinion on the fairness with which they present financial position, results of operations,
and cash flows in conformity with accounting standards promulgated by the U.S. Securities and d.
Exchange Commission.
Obtain systematic and objective evidence about financial assertions and report the results to interested
users. - Answer a. Enhance the degree of confidence that intended users can place in the financial
statements.
1.29 Bankers who are processing loan applications from companies seeking large loans will probably ask
for financial statements audited by an independent CPA because
a. Financial statements are too complex for the bankers to analyze themselves.
b. They are too far away from company headquarters to perform accounting and auditing themselves.
c. The consequences of making a bad loan are very undesirable.
with Accurate Solutions
1.23 Which of the following would be considered an assurance engagement?
a. Giving an opinion on a prize promoter's claims about the amount of sweepstakes prizes awarded in
the past.
b. Giving an opinion on the conformity of the financial statements of a university with generally
accepted accounting principles.
c. Giving an opinion on the fair presentation of a newspaper's circulation data.
d. Giving assurance about the average drive length achieved by golfers with a client's golf balls.
e. All of the above. - Answer e. All of the above.
1.24 It is always a good idea for auditors to begin an audit with the professional skepticism characterized
by the assumption that
a. A potential conflict of interest always exists between the auditor and the management of the
enterprise under audit.
b. In audits of financial statements, the auditor acts exclusively in the capacity of an auditor.
c. The professional status of the independent auditor imposes commensurate professional obligations.
d. Financial statements and financial data are verifiable. - Answer a. A potential conflict of interest
always exists between the auditor and the management of the enterprise under audit.
1.25 In an attestation engagement, a CPA practitioner is engaged to
a. Compile a company's financial forecast based on management's assumptions without expressing any
form of assurance.
b. Prepare a written report containing a conclusion about the reliability of a management assertion.
c. Prepare a tax return using information the CPA has not audited or reviewed.
d. Give expert testimony in court on particular facts in a corporate income tax controversy. - Answer b.
Prepare a written report containing a conclusion about the reliability of a management assertion.
1.26 A determination of cost savings obtained by outsourcing cafeteria services is most likely to be an
objective of
a. Environmental auditing.
, b. Financial auditing.
c. Compliance auditing.
d. Operational auditing. - Answer d. Operational auditing.
1.27 The primary difference between operational auditing and financial auditing is that in operational
auditing
a. The operational auditor is not concerned with whether the audited activity is generating information
in compliance with financial accounting standards.
b. The operational auditor is seeking to help management use resources in the most effective manner
possible.
c. The operational auditor starts with the financial statements of an activity being audited and works
backward to the basic processes involved in producing them.
d. The operational auditor can use analytical skills and tools that are not necessary in financial auditing. -
Answer b. The operational auditor is seeking to help management use resources in the most effective
manner possible.
1.28 According to the AICPA, the purpose of an audit of financial statements is to
a. Enhance the degree of confidence that intended users can place in the financial statements.
b. Express an opinion on the fairness with which they present financial position, results of operations,
and cash flows in conformity with accounting standards promulgated by the Financial Accounting
Standards Board.
c. Express an opinion on the fairness with which they present financial position, results of operations,
and cash flows in conformity with accounting standards promulgated by the U.S. Securities and d.
Exchange Commission.
Obtain systematic and objective evidence about financial assertions and report the results to interested
users. - Answer a. Enhance the degree of confidence that intended users can place in the financial
statements.
1.29 Bankers who are processing loan applications from companies seeking large loans will probably ask
for financial statements audited by an independent CPA because
a. Financial statements are too complex for the bankers to analyze themselves.
b. They are too far away from company headquarters to perform accounting and auditing themselves.
c. The consequences of making a bad loan are very undesirable.
