, Chapter 01 m m
An Introduction to Assurance and Financial Statement Auditing
m m m m m m m
Truem/mFalsemQuestions
1. Independencem standards m arem requiredm form auditsm ofm publicm companies,m butm notm form au
ditsmofmprivatemcompanies.
True False
2. Decisionm makersm demandm reliablem informationm thatm ism providedm bym accountants.
True False
3. Informationm asymmetry m seldomm occurs.
True False
4. Conflictsm ofm interestm oftenm occurm betweenm absenteem ownersm andm managers.
True False
5. Auditingm servicesm andm attestationm servicesm arem them same.
True False
6. Auditingmismamtypemofmattestmservice.
True False
7. Testingmallmtransactions mthatmoccurredmduringmthemperiodmismcostmprohibitive.
True False
MultiplemChoicemQuestions
1-1
Copyrightm©m2017mMcGraw-
HillmEducation.mAllmrightsmreserved.mNomreproductionmormdistributionmwithoutmthempriormwrittenmconsentmofmMcGraw-HillmEducation.
,8. Whymdomauditorsmgenerally musemamsamplingmapproach mtomevidencemgathering?
A. Auditorsm aremexperts m andmdomnotmneedmtomlookmatmmuchmtomknowmwhethermthemfinan
cialmstatementsmaremcorrectmormnot.
B. Auditorsm mustmbalancemthemcostmofmthemauditmwithmthemneedm
formprecision.
C. Auditorsmmustmlimitmtheirmexposuremtomtheirmauditeemtommaint
ainmindependence.
D. Themauditor's mrelationshipmwithmthemauditeemismgenerally madversarial,msomthemauditorm
willmnotmhavemaccessmtomallmofmthemfinancialminformationmofmthemcompany.
9. Whichm ofm them followingm statementsm bestm describes m am relationshipm betweenm samplem sizem
andmothermelementsmofmauditing?
A. Ifm materialitym increases, m som willm th
emsamplemsize.
B. Ifm them desiredm levelm ofm assurancem increases,m samplem sizesm canm
bemsmaller.
C. Ifmmateriality mdecreases,msamplemsizemwillmneedm
tomincrease.
D. Therem ismnomrelationshipm betweenmsamplemsizem andm materiality mormthem desiredmle
velmofmassurance.
10. Whichm ofmthem followingm statementsm aboutm them studym ofm auditingm ismNOTm true?
A. Them studym ofm auditingm canm bem valuablem tom futurem accountants m andm business m decis
ionmmakersmwhethermormnotmtheymplanmtombecomemauditors.
B. Them studym ofm auditingm focusesm onm learningm them analyticalm andm logicalm skills m necessary
m tom
evaluatemthemrelevancemandmreliability mofminformation.
C. Them studym ofm auditingm focusesm onm learningm them rules,m techniques,m andm computati
onsmrequiredmtomanalyzemfinancialmstatements.
D. Them studym ofm auditingm beginsm withm them understandingm ofm amcoherentm logicalm framewo
rkmandmtechniquesmusefulmformgatheringmandmanalyzingmevidencemaboutmothers'masser
tions.
11. Thembasicmpurposemofmamfinancialmstatementmauditmismto
A. Detect
fraud.
m
B. Examinem individualm transactions m som thatm them auditorm maym certifym as
m tom
theirmvalidity.
C. Providem assurancem regardingm whetherm them auditee's m financialm statementsm a
remfairlymstated.
D. Assurem them consistent m applicationm ofm correctm accounti
ngmprocedures.
1-2
Copyrightm©m2017mMcGraw-
HillmEducation.mAllmrightsmreserved.mNomreproductionmormdistributionmwithoutmthempriormwrittenmconsentmofmMcGraw-HillmEducation.
, 12. Assurancem servicesm maym improvem allm ofm them followingm except
A. Relevancm
e.
B. Credibilit
y.
m
C. Periodicit
y.
m
D. Reliabilit
y.
m
13. Evidencem ism reliablem ifm it
A. Signalsm them truem statem ofm am manageme
ntmassertion.
B. Appliesm tomthem periodm bein
gmaudited.
C. Relatesm tom them auditm assertionm bein
gmtested.
D. Ismconsistentmwithmmanagement'
smassertions.
14. Whichmofmthem followingm bestmdescribes mthemconceptm ofmauditmrisk?
A. Them riskm ofm them auditorm beingmsuedm becausem ofm associationm w
ithmanmauditee.
B. Themriskmthatmthemauditormwillmprovidemam"clean"mopinionmonmfinancialmstatementsm t
hatmare,minmfact,mmaterially mmisstated.
C. Themoverallmriskmthatmammaterialmmisstatement mexistsminmthemfinanc
ialmstatements.
D. Them riskmthatm auditorsm usem auditm procedures m thatm a
reminappropriate.
15. Anmauditormwhomacceptsmanmauditmengagementmandmdoesmnotmpossessmexpertise m
withmrespectmtomthembusiness mentity'smindustry, mshould
A. Engagemfinancialmexpertsmfamiliarmwithmthemnaturemofmt
hembusinessmentity.
B. Obtainmamknowledgemofmmattersmthatmrelatemtomthemnaturemofm
thementity'smbusiness.
C. Refermamsubstantial mportionmofmthemauditmtomanothermCPA,mwhomwillmactmas
mthe m
principalmauditor.
D. Firstminformm management m thatm anm unqualifiedm opinionm cann
otmbemissued.
1-3
Copyrightm©m2017mMcGraw-
HillmEducation.mAllmrightsmreserved.mNomreproductionmormdistributionmwithoutmthempriormwrittenmconsentmofmMcGraw-HillmEducation.
An Introduction to Assurance and Financial Statement Auditing
m m m m m m m
Truem/mFalsemQuestions
1. Independencem standards m arem requiredm form auditsm ofm publicm companies,m butm notm form au
ditsmofmprivatemcompanies.
True False
2. Decisionm makersm demandm reliablem informationm thatm ism providedm bym accountants.
True False
3. Informationm asymmetry m seldomm occurs.
True False
4. Conflictsm ofm interestm oftenm occurm betweenm absenteem ownersm andm managers.
True False
5. Auditingm servicesm andm attestationm servicesm arem them same.
True False
6. Auditingmismamtypemofmattestmservice.
True False
7. Testingmallmtransactions mthatmoccurredmduringmthemperiodmismcostmprohibitive.
True False
MultiplemChoicemQuestions
1-1
Copyrightm©m2017mMcGraw-
HillmEducation.mAllmrightsmreserved.mNomreproductionmormdistributionmwithoutmthempriormwrittenmconsentmofmMcGraw-HillmEducation.
,8. Whymdomauditorsmgenerally musemamsamplingmapproach mtomevidencemgathering?
A. Auditorsm aremexperts m andmdomnotmneedmtomlookmatmmuchmtomknowmwhethermthemfinan
cialmstatementsmaremcorrectmormnot.
B. Auditorsm mustmbalancemthemcostmofmthemauditmwithmthemneedm
formprecision.
C. Auditorsmmustmlimitmtheirmexposuremtomtheirmauditeemtommaint
ainmindependence.
D. Themauditor's mrelationshipmwithmthemauditeemismgenerally madversarial,msomthemauditorm
willmnotmhavemaccessmtomallmofmthemfinancialminformationmofmthemcompany.
9. Whichm ofm them followingm statementsm bestm describes m am relationshipm betweenm samplem sizem
andmothermelementsmofmauditing?
A. Ifm materialitym increases, m som willm th
emsamplemsize.
B. Ifm them desiredm levelm ofm assurancem increases,m samplem sizesm canm
bemsmaller.
C. Ifmmateriality mdecreases,msamplemsizemwillmneedm
tomincrease.
D. Therem ismnomrelationshipm betweenmsamplemsizem andm materiality mormthem desiredmle
velmofmassurance.
10. Whichm ofmthem followingm statementsm aboutm them studym ofm auditingm ismNOTm true?
A. Them studym ofm auditingm canm bem valuablem tom futurem accountants m andm business m decis
ionmmakersmwhethermormnotmtheymplanmtombecomemauditors.
B. Them studym ofm auditingm focusesm onm learningm them analyticalm andm logicalm skills m necessary
m tom
evaluatemthemrelevancemandmreliability mofminformation.
C. Them studym ofm auditingm focusesm onm learningm them rules,m techniques,m andm computati
onsmrequiredmtomanalyzemfinancialmstatements.
D. Them studym ofm auditingm beginsm withm them understandingm ofm amcoherentm logicalm framewo
rkmandmtechniquesmusefulmformgatheringmandmanalyzingmevidencemaboutmothers'masser
tions.
11. Thembasicmpurposemofmamfinancialmstatementmauditmismto
A. Detect
fraud.
m
B. Examinem individualm transactions m som thatm them auditorm maym certifym as
m tom
theirmvalidity.
C. Providem assurancem regardingm whetherm them auditee's m financialm statementsm a
remfairlymstated.
D. Assurem them consistent m applicationm ofm correctm accounti
ngmprocedures.
1-2
Copyrightm©m2017mMcGraw-
HillmEducation.mAllmrightsmreserved.mNomreproductionmormdistributionmwithoutmthempriormwrittenmconsentmofmMcGraw-HillmEducation.
, 12. Assurancem servicesm maym improvem allm ofm them followingm except
A. Relevancm
e.
B. Credibilit
y.
m
C. Periodicit
y.
m
D. Reliabilit
y.
m
13. Evidencem ism reliablem ifm it
A. Signalsm them truem statem ofm am manageme
ntmassertion.
B. Appliesm tomthem periodm bein
gmaudited.
C. Relatesm tom them auditm assertionm bein
gmtested.
D. Ismconsistentmwithmmanagement'
smassertions.
14. Whichmofmthem followingm bestmdescribes mthemconceptm ofmauditmrisk?
A. Them riskm ofm them auditorm beingmsuedm becausem ofm associationm w
ithmanmauditee.
B. Themriskmthatmthemauditormwillmprovidemam"clean"mopinionmonmfinancialmstatementsm t
hatmare,minmfact,mmaterially mmisstated.
C. Themoverallmriskmthatmammaterialmmisstatement mexistsminmthemfinanc
ialmstatements.
D. Them riskmthatm auditorsm usem auditm procedures m thatm a
reminappropriate.
15. Anmauditormwhomacceptsmanmauditmengagementmandmdoesmnotmpossessmexpertise m
withmrespectmtomthembusiness mentity'smindustry, mshould
A. Engagemfinancialmexpertsmfamiliarmwithmthemnaturemofmt
hembusinessmentity.
B. Obtainmamknowledgemofmmattersmthatmrelatemtomthemnaturemofm
thementity'smbusiness.
C. Refermamsubstantial mportionmofmthemauditmtomanothermCPA,mwhomwillmactmas
mthe m
principalmauditor.
D. Firstminformm management m thatm anm unqualifiedm opinionm cann
otmbemissued.
1-3
Copyrightm©m2017mMcGraw-
HillmEducation.mAllmrightsmreserved.mNomreproductionmormdistributionmwithoutmthempriormwrittenmconsentmofmMcGraw-HillmEducation.
