Chapter 6 Test Bank Questions and Answers
Distinction Level 2023
The objective of an audit of the financial statements is an expression of an opinion on - -the
FAIRNESS of the financial statements in all material respects
-If the auditor believes that the financial statements are not fairly stated or is unable to reach a
conclusion because of insufficient evidence, the auditor - -has the RESPONSIBILITY of
notifying financial statement users through the auditor's report.
-Auditors accumulate evidence to - -reach a CONCLUSION about the fairness of the financial
statements
-Which of the following is not one of the steps used to develop audit objectives? - -know the
PROPER type of audit opinion to issue
-For publicly listed companies, the auditor also issues which of the following reports in addition
to a report containing the auditor's opinion? - -a report on INTERNAL CONTROL over financial
reporting
-The responsibility for adopting sound accounting policies and maintaining adequate internal
control rests with the - -company MANAGEMENT
-If management insists on financial statement disclosures that the auditor finds unacceptable, the
auditor can withdraw from the engagement or - -Issue an adverse opinion YES
Issue a qualified opinion YES
-In certifying their annual financial statements, the CEO and CFO of a public company certify
that the financial statements comply with the requirements of - -the Securities Exchange Act of
1934
-Which of the following statements is true of a public company's financial statements? - -
Sarbanes-Oxley requires BOTH the CEO and CFO to certify the financial statements.
-The responsibility for the preparation of the financial statements and the accompanying
footnotes belongs to - -management
-Management is not responsible for which of the following? - -ISSUING their own opinion on
the fairness of the financial statements
-The auditor's best defense when material misstatements are not uncovered is to have conducted
the audit - -in ACCORDANCE with generally accepted auditing standards.
, -Which of the following is not one of the reasons that auditors provide only reasonable assurance
on the financial statements? - -Auditors believe that REASONABLE assurance is sufficient in
the vast majority of cases.
-Which of the following statements is the most correct regarding errors and fraud? - -An error is
UNINTENTIONAL, whereas fraud is INTENTIONAL.
-When an auditor believes that an illegal act may have occurred, the auditor should first - -
OBTAIN an understanding of the nature and circumstances of the act.
-The auditor has no responsibility to plan and perform the audit to obtain reasonable assurance
that misstatements that are not ________ are detected. - -MATERIAL to the financial statements
-Fraudulent financial reporting is most likely to be committed by whom? - -company
MANAGEMENT
-Which of the following would most likely be deemed a direct effect illegal act? - -violation of
federal INCOME TAX laws
-The concept of reasonable assurance indicates that the auditor is - -not a guarantor of the
CORRECTNESS of the financial statements.
-Which of the following is the auditor least likely to do when aware of an illegal act? - -contact
the local LAW ENFORCEMENT officials regarding potential criminal wrongdoing
-An auditor discovers that the company's bookkeeper unintentionally made a mistake in
calculating the amount of the quarterly sales. This is an example of - -an ERROR
-An auditor has a duty to - -provide REASONABLE assurance that material misstatements will
be detected.
-If the auditor were responsible for making certain that all of management's assertions in the
financial statements were absolutely correct, - -audits would not be ECONOMICALLY
practical.
-When dealing with laws and regulations that do not have a direct effect on the financial
statements, the auditor - -should INQUIRE OF MANAGEMENT about whether the entity is in
compliance with such laws and regulations.
-Which of the following statements is usually true? - -An item is considered material if it would
likely have CHANGED or influenced the decisions of a reasonable person using the statements.
-Auditing standards make ________ distinction(s) between the auditor's responsibilities for
searching for errors and fraud. - -no
Distinction Level 2023
The objective of an audit of the financial statements is an expression of an opinion on - -the
FAIRNESS of the financial statements in all material respects
-If the auditor believes that the financial statements are not fairly stated or is unable to reach a
conclusion because of insufficient evidence, the auditor - -has the RESPONSIBILITY of
notifying financial statement users through the auditor's report.
-Auditors accumulate evidence to - -reach a CONCLUSION about the fairness of the financial
statements
-Which of the following is not one of the steps used to develop audit objectives? - -know the
PROPER type of audit opinion to issue
-For publicly listed companies, the auditor also issues which of the following reports in addition
to a report containing the auditor's opinion? - -a report on INTERNAL CONTROL over financial
reporting
-The responsibility for adopting sound accounting policies and maintaining adequate internal
control rests with the - -company MANAGEMENT
-If management insists on financial statement disclosures that the auditor finds unacceptable, the
auditor can withdraw from the engagement or - -Issue an adverse opinion YES
Issue a qualified opinion YES
-In certifying their annual financial statements, the CEO and CFO of a public company certify
that the financial statements comply with the requirements of - -the Securities Exchange Act of
1934
-Which of the following statements is true of a public company's financial statements? - -
Sarbanes-Oxley requires BOTH the CEO and CFO to certify the financial statements.
-The responsibility for the preparation of the financial statements and the accompanying
footnotes belongs to - -management
-Management is not responsible for which of the following? - -ISSUING their own opinion on
the fairness of the financial statements
-The auditor's best defense when material misstatements are not uncovered is to have conducted
the audit - -in ACCORDANCE with generally accepted auditing standards.
, -Which of the following is not one of the reasons that auditors provide only reasonable assurance
on the financial statements? - -Auditors believe that REASONABLE assurance is sufficient in
the vast majority of cases.
-Which of the following statements is the most correct regarding errors and fraud? - -An error is
UNINTENTIONAL, whereas fraud is INTENTIONAL.
-When an auditor believes that an illegal act may have occurred, the auditor should first - -
OBTAIN an understanding of the nature and circumstances of the act.
-The auditor has no responsibility to plan and perform the audit to obtain reasonable assurance
that misstatements that are not ________ are detected. - -MATERIAL to the financial statements
-Fraudulent financial reporting is most likely to be committed by whom? - -company
MANAGEMENT
-Which of the following would most likely be deemed a direct effect illegal act? - -violation of
federal INCOME TAX laws
-The concept of reasonable assurance indicates that the auditor is - -not a guarantor of the
CORRECTNESS of the financial statements.
-Which of the following is the auditor least likely to do when aware of an illegal act? - -contact
the local LAW ENFORCEMENT officials regarding potential criminal wrongdoing
-An auditor discovers that the company's bookkeeper unintentionally made a mistake in
calculating the amount of the quarterly sales. This is an example of - -an ERROR
-An auditor has a duty to - -provide REASONABLE assurance that material misstatements will
be detected.
-If the auditor were responsible for making certain that all of management's assertions in the
financial statements were absolutely correct, - -audits would not be ECONOMICALLY
practical.
-When dealing with laws and regulations that do not have a direct effect on the financial
statements, the auditor - -should INQUIRE OF MANAGEMENT about whether the entity is in
compliance with such laws and regulations.
-Which of the following statements is usually true? - -An item is considered material if it would
likely have CHANGED or influenced the decisions of a reasonable person using the statements.
-Auditing standards make ________ distinction(s) between the auditor's responsibilities for
searching for errors and fraud. - -no
