Auditing, 14e (Arens)
Chapter 1 The Demand for Audit and Other Assurance Services
1.1 Describe auditing and its purpose
1) Which of the following illustrates the definition of auditing with respect to the evidence analysis
process?
A) accumulation and evaluation of evidence regarding assertions
B) learning about different types of computing technology, such as mainframes
C) writing an operational audit report that is tailored to the client's situation
D) making sure that the auditor is competent and understands evidence gathering
Answer: A
Diff: 1 Type: MC Page Ref: 3
Learning Obj.: 1-1 Describe auditing and its purpose
2) Auditing should be done by a qualified
A) chartered accountant.
B) certified management accountant.
C) competent and independent person.
D) professional accountant.
Answer: C
Diff: 2 Type: MC Page Ref: 3
Learning Obj.: 1-1 Describe auditing and its purpose
3) Which of the following illustrates the definition of auditing with respect to the reporting process?
A) accumulation and evaluation of evidence about balance sheet accounts
B) reporting on the degree of correspondence between financial statements and ASPE/IFRS
C) writing an operational audit report that is tailored to the client's situation
D) making sure that the auditor is competent and understands evidence gathering
Answer: B
Diff: 2 Type: MC Page Ref: 3
Learning Obj.: 1-1 Describe auditing and its purpose
4) In the audit of historical financial statements by PA firms, the criteria used are
A) generally accepted auditing standards.
B) relevant accounting frameworks.
C) regulations of the Canada Revenue Agency.
D) regulations of the provincial securities commissions.
Answer: B
Diff: 1 Type: MC Page Ref: 3
Learning Obj.: 1-1 Describe auditing and its purpose
1
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,5) A large PA firm has assessed evidence collected during an engagement. Criteria used to assess the
financial statements were International Financial Reporting Standards (IFRS). A high level of assurance
was obtained. The type of engagement conducted was
A) an audit.
B) a review.
C) management consulting.
D) a compilation.
Answer: A
Diff: 2 Type: MC Page Ref: 3
Learning Obj.: 1-1 Describe auditing and its purpose
6) The auditor and the entities being audited should agree on the criteria to be used in the audit
A) well in advance before the audit starts.
B) after the audit planning has been done.
C) as they progress with the audit, as they can determine which criteria are most suitable.
D) at the end of the audit.
Answer: A
Diff: 1 Type: MC Page Ref: 4
Learning Obj.: 1-1 Describe auditing and its purpose
7) George had a conversation with the accounting personnel and documented information about how the
accounting systems function. He has also placed copies of accounting forms in his files. George is
performing which task?
A) accounting procedures
B) evidence gathering
C) tax audit
D) audit report preparation
Answer: B
Diff: 3 Type: MC Page Ref: 4
Learning Obj.: 1-1 Describe auditing and its purpose
8) One of the reasons that an auditor must be competent is so that they can
A) understand the engagement risks and the criteria used by the client.
B) explain to staff how the bookkeeping should be done.
C) record the transactions properly for the underlying records.
D) capture the information properly in the computer files.
Answer: A
Diff: 2 Type: MC Page Ref: 4
Learning Obj.: 1-1 Describe auditing and its purpose
9) One of the reasons that an auditor must be competent is so that they can
A) select the type and amount of evidence to accumulate.
B) explain to staff how the bookkeeping should be done.
C) record the transactions properly for the underlying records.
D) capture the information properly in the computer files.
Answer: A
Diff: 2 Type: MC Page Ref: 4
Learning Obj.: 1-1 Describe auditing and its purpose
2
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, 10) It is important for the auditor to be independent because
A) otherwise the auditor would not charge a fair rate to the client.
B) otherwise the auditor might not be as knowledgeable of the subject matter and the criteria.
C) this will prevent bias in accumulating and evaluating evidence.
D) the Canadian tax authorities require that the auditor be independent.
Answer: C
Diff: 2 Type: MC Page Ref: 4
Learning Obj.: 1-1 Describe auditing and its purpose
11) As an external auditor is paid a fee by a client company, he or she
A) is absolutely independent and may conduct an audit.
B) may still be sufficiently independent to conduct an audit.
C) is never considered to be independent.
D) must receive approval from the relevant provincial securities commission before conducting an audit.
Answer: B
Diff: 1 Type: MC Page Ref: 5
Learning Obj.: 1-1 Describe auditing and its purpose
12) The independent auditor's report is the
A) communication of the outcome of auditor's evaluation to the users.
B) set of audited financial statements.
C) invoice of the auditor detailing the work they have performed.
D) report presented to management about the possible improvements.
Answer: A
Diff: 2 Type: MC Page Ref: 5
Learning Obj.: 1-1 Describe auditing and its purpose
13) In the audit of a corporate tax return, the CRA auditor should demonstrate competence in the use of
A) external databases that contain economic statistics.
B) standard personal and corporate tax preparation software.
C) the Income Tax Act and accompanying regulations.
D) database management software for the use of client based research.
Answer: C
Diff: 1 Type: MC Page Ref: 5
Learning Obj.: 1-1 Describe auditing and its purpose
14) In the audit of an individual's tax return, the criteria used would be
A) an accounting framework.
B) the Income Tax Act.
C) the client's policies for taxable income.
D) the auditor's judgment.
Answer: B
Diff: 2 Type: MC Page Ref: 5
Learning Obj.: 1-1 Describe auditing and its purpose
3
© 2019 Pearson Canada Inc.
Chapter 1 The Demand for Audit and Other Assurance Services
1.1 Describe auditing and its purpose
1) Which of the following illustrates the definition of auditing with respect to the evidence analysis
process?
A) accumulation and evaluation of evidence regarding assertions
B) learning about different types of computing technology, such as mainframes
C) writing an operational audit report that is tailored to the client's situation
D) making sure that the auditor is competent and understands evidence gathering
Answer: A
Diff: 1 Type: MC Page Ref: 3
Learning Obj.: 1-1 Describe auditing and its purpose
2) Auditing should be done by a qualified
A) chartered accountant.
B) certified management accountant.
C) competent and independent person.
D) professional accountant.
Answer: C
Diff: 2 Type: MC Page Ref: 3
Learning Obj.: 1-1 Describe auditing and its purpose
3) Which of the following illustrates the definition of auditing with respect to the reporting process?
A) accumulation and evaluation of evidence about balance sheet accounts
B) reporting on the degree of correspondence between financial statements and ASPE/IFRS
C) writing an operational audit report that is tailored to the client's situation
D) making sure that the auditor is competent and understands evidence gathering
Answer: B
Diff: 2 Type: MC Page Ref: 3
Learning Obj.: 1-1 Describe auditing and its purpose
4) In the audit of historical financial statements by PA firms, the criteria used are
A) generally accepted auditing standards.
B) relevant accounting frameworks.
C) regulations of the Canada Revenue Agency.
D) regulations of the provincial securities commissions.
Answer: B
Diff: 1 Type: MC Page Ref: 3
Learning Obj.: 1-1 Describe auditing and its purpose
1
© 2019 Pearson Canada Inc.
,5) A large PA firm has assessed evidence collected during an engagement. Criteria used to assess the
financial statements were International Financial Reporting Standards (IFRS). A high level of assurance
was obtained. The type of engagement conducted was
A) an audit.
B) a review.
C) management consulting.
D) a compilation.
Answer: A
Diff: 2 Type: MC Page Ref: 3
Learning Obj.: 1-1 Describe auditing and its purpose
6) The auditor and the entities being audited should agree on the criteria to be used in the audit
A) well in advance before the audit starts.
B) after the audit planning has been done.
C) as they progress with the audit, as they can determine which criteria are most suitable.
D) at the end of the audit.
Answer: A
Diff: 1 Type: MC Page Ref: 4
Learning Obj.: 1-1 Describe auditing and its purpose
7) George had a conversation with the accounting personnel and documented information about how the
accounting systems function. He has also placed copies of accounting forms in his files. George is
performing which task?
A) accounting procedures
B) evidence gathering
C) tax audit
D) audit report preparation
Answer: B
Diff: 3 Type: MC Page Ref: 4
Learning Obj.: 1-1 Describe auditing and its purpose
8) One of the reasons that an auditor must be competent is so that they can
A) understand the engagement risks and the criteria used by the client.
B) explain to staff how the bookkeeping should be done.
C) record the transactions properly for the underlying records.
D) capture the information properly in the computer files.
Answer: A
Diff: 2 Type: MC Page Ref: 4
Learning Obj.: 1-1 Describe auditing and its purpose
9) One of the reasons that an auditor must be competent is so that they can
A) select the type and amount of evidence to accumulate.
B) explain to staff how the bookkeeping should be done.
C) record the transactions properly for the underlying records.
D) capture the information properly in the computer files.
Answer: A
Diff: 2 Type: MC Page Ref: 4
Learning Obj.: 1-1 Describe auditing and its purpose
2
© 2019 Pearson Canada Inc.
, 10) It is important for the auditor to be independent because
A) otherwise the auditor would not charge a fair rate to the client.
B) otherwise the auditor might not be as knowledgeable of the subject matter and the criteria.
C) this will prevent bias in accumulating and evaluating evidence.
D) the Canadian tax authorities require that the auditor be independent.
Answer: C
Diff: 2 Type: MC Page Ref: 4
Learning Obj.: 1-1 Describe auditing and its purpose
11) As an external auditor is paid a fee by a client company, he or she
A) is absolutely independent and may conduct an audit.
B) may still be sufficiently independent to conduct an audit.
C) is never considered to be independent.
D) must receive approval from the relevant provincial securities commission before conducting an audit.
Answer: B
Diff: 1 Type: MC Page Ref: 5
Learning Obj.: 1-1 Describe auditing and its purpose
12) The independent auditor's report is the
A) communication of the outcome of auditor's evaluation to the users.
B) set of audited financial statements.
C) invoice of the auditor detailing the work they have performed.
D) report presented to management about the possible improvements.
Answer: A
Diff: 2 Type: MC Page Ref: 5
Learning Obj.: 1-1 Describe auditing and its purpose
13) In the audit of a corporate tax return, the CRA auditor should demonstrate competence in the use of
A) external databases that contain economic statistics.
B) standard personal and corporate tax preparation software.
C) the Income Tax Act and accompanying regulations.
D) database management software for the use of client based research.
Answer: C
Diff: 1 Type: MC Page Ref: 5
Learning Obj.: 1-1 Describe auditing and its purpose
14) In the audit of an individual's tax return, the criteria used would be
A) an accounting framework.
B) the Income Tax Act.
C) the client's policies for taxable income.
D) the auditor's judgment.
Answer: B
Diff: 2 Type: MC Page Ref: 5
Learning Obj.: 1-1 Describe auditing and its purpose
3
© 2019 Pearson Canada Inc.
