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
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
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.
ANS: T PTS: 1 OBJ: Scope of Services
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
, 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
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
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.
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 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
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
20. Audited financial statements should be presented fairly according to the substance of GAAS.
ANS: F PTS: 1 OBJ: Professional and Regulatory Organizations
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
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
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
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.
ANS: T PTS: 1 OBJ: Scope of Services
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
, 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
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
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.
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 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
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
20. Audited financial statements should be presented fairly according to the substance of GAAS.
ANS: F PTS: 1 OBJ: Professional and Regulatory Organizations
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
