Test Bank Complete_
Auditing & Assurance Services 4th Edition (Canadian Edition), (2023)
By William F. Messier Jr, Steven M. Glover, Douglas F. Prawitt, Naomi Paisley, Gregory Springate
All Chapters 1-21| Latest Version With Verified Answers| Rated A+
From: [Bestmaxsolutions.stuvia
,PART ONE: INTRODUCTION TO ASSURANCE AND FINANCIAL STATEMENT AUDITING _______ 3
Chapter 01. An Introduction To Assurance And Financial Statement Auditing __________________ 3
Chapter 02: The Financial Statement Auditing Environment _______________________________ 24
PART TWO: AUDIT PLANNING AND BASIC AUDITING CONCEPTS ______________________ 43
Chapter 03: Audit Planning, Types Of Audit Tests, And Materiality _________________________ 43
Chapter 04: Risk Assessment ________________________________________________________ 64
Chapter 05: Evidence And Documentation _____________________________________________ 82
PART THREE: UNDERSTANDING AND AUDITING INTERNAL CONTROL _________________ 110
Chapter 06: Internal Control In A Financial Statement Audit ______________________________ 110
Chapter 07: Auditing Internal Control Over Financial Reporting ___________________________ 139
PART FOUR: STATISTICAL AND NONSTATISTICAL SAMPLING TOOLS FOR AUDITING ______ 160
Chapter 08: Audit Sampling: An Overview And Application To Tests Of Controls _____________ 160
Chapter 09: Audit Sampling: An Application To Substantive Tests Of Account Balances ________ 182
PART FIVE: AUDITING BUSINESS PROCESSES _____________________________________ 199
Chapter 10: Auditing The Revenue Process ___________________________________________ 199
Chapter 11: Auditing The Purchasing Process __________________________________________ 227
Chapter 12: Auditing The Human Resource Management Process _________________________ 252
Chapter 13: Auditing The Inventory Management Process _______________________________ 272
Chapter 14: Auditing The Financing/Investing Process: Prepaid Expenses, Intangible Assets,
Property, Plant, And Equipment, And Goodwill ________________________________________ 294
Chapter 15: Auditing The Financing/Investing Process: Long-Term Liabilities, Shareholders' Equity,
And Income Statement Accounts ___________________________________________________ 314
Chapter 16: Auditing The Financing/Investing Process: Cash And Investments _______________ 331
PART SIX: COMPLETING THE AUDIT AND REPORTING RESPONSIBILITIES _______________ 350
Chapter 17: Completing The Audit Engagement ________________________________________ 350
Chapter 18: Reports On Audited Financial Statements __________________________________ 378
PART SEVEN: PROFESSIONAL RESPONSIBILITIES ___________________________________ 402
Chapter 19: Professional Conduct, Independence, And Quality Control _____________________ 402
Chapter 20: Legal Liability _________________________________________________________ 423
PART EIGHT: ASSURANCE, ATTESTATION, AND INTERNAL AUDITING SERVICES __________ 440
Chapter 21: Assurance, Attestation, And Internal Auditing Services ________________________ 440
,PART ONE: INTRODUCTION TO ASSURANCE AND FINANCIAL STATEMENT AUDITING
Chapter 01. An Introduction To Assurance And Financial Statement Auditing
William F. Messier Jr: Auditing & Assurance Services 4th Edition (Canadian Edition), (2023) Test Bank
TRUE/FALSE
1) Auditing Focuses On Rules, Techniques, And Computations Required To Prepare And
Analyze Financial Information.
⊚ True
⊚ False
ANSWER: False
Auditing Focuses On Evaluating The Fairness Of Financial Statements And Internal
Controls, Not Just The Rules And Computations Used To Prepare Financial Information.
Auditing's Primary Objective Is To Provide An Independent Opinion On The Reliability
Of Financial Statements.
2) Decision Makers Demand Reliable Information That Is Provided By Accountants.
⊚ True
⊚ False
ANSWER: True
Decision-Makers, Such As Investors, Creditors, And Regulators, Rely On Accountants
To Provide Reliable Financial Information To Make Informed Decisions. Accountants
Ensure That Financial Data Is Accurate, Timely, And Trustworthy.
3) Information Asymmetry Seldom Occurs.
⊚ True
⊚ False
,ANSWER: False
Information Asymmetry Occurs Frequently, Especially In Agency Relationships Where
One Party (Management) Has More Or Better Information About A Company's Financial
Status Than The Other Party (Shareholders Or Creditors). This Imbalance Can Lead To
Issues Such As Moral Hazard Or Adverse Selection.
4) Conflicts Of Interest Often Occur Between Absentee Owners And Managers.
⊚ True
⊚ False
ANSWER: True
Conflicts Of Interest Often Arise Because Managers (Who Run The Company Day-To-
Day) May Have Different Incentives Than Absentee Owners (Shareholders). For
Instance, Managers May Prioritize Personal Benefits Over Shareholder Value, Leading
To Potential Agency Problems.
5) Auditing Services And Attest Services Are The Same.
⊚ True
⊚
ANSWER: False
Auditing Is A Type Of Attest Service, But Not All Attest Services Are Auditing. Attest
Services Encompass A Broader Range Of Assurance Services Where Auditors Or Other
Professionals Assess Or Express Opinions On Financial Statements Or Other
Information.
6) Auditing Is A Type Of Attest Service.
⊚ True (Correct Answer)
⊚ False
ANSWER: True
,Auditing Falls Under The Umbrella Of Attest Services, Where Auditors Provide An
Independent Examination Of Financial Statements And Offer An Opinion On Their
Fairness And Accuracy.
7) Testing All Transactions That Occurred During The Period Is Cost Prohibitive.
⊚ True
⊚ False
ANSWER: True
It Is Usually Impractical To Examine Every Transaction In A Large Company Due To
The Sheer Volume Of Transactions. Auditors Typically Use Sampling Techniques To
Evaluate The Financial Statements, As Testing All Transactions Would Be Inefficient
And Costly.
MULTIPLE CHOICE
8) Why Do Auditors Generally Use A Sampling Approach To Evidence Gathering?
A) Auditors Are Experts And Do Not Need To Look At Much To Know Whether The
Financial Statements Are Correct Or Not.
B) Auditors Must Balance The Cost Of The Audit With The Need For Precision.
C) Auditors Must Limit Their Exposure To Their Auditee To Maintain Independence.
D) The Auditor's Relationship With The Auditee Is Generally Adversarial, So The
Auditor Will Not Have Access To All Of The Financial Information Of The Company.
ANSWER: B
Auditors Use Sampling To Balance The Cost And Time Associated With The Audit With
The Need For A Reasonable Level Of Precision. Sampling Allows Them To Draw
Conclusions About The Entire Population Of Transactions Without Reviewing Each One.
,9) Which Of The Following Statements Best Describes A Relationship Between Sample
Size And Other Elements Of Auditing?
A) If Materiality Increases, So Will The Sample Size.
B) If The Desired Level Of Assurance Increases, Sample Sizes Can Be Smaller.
C) If Materiality Decreases, Sample Size Will Need To Increase.
D) There Is No Relationship Between Sample Size And Materiality Or The Desired
Level Of Assurance.
ANSWER: C
The Smaller The Materiality Threshold, The Greater The Sample Size Needed, As The
Auditor Must Be More Certain Of The Financial Statements’ Accuracy In Order To
Detect Smaller Misstatements.
10) Which Of The Following Statements About The Study Of Auditing Is NOT True?
A) The Study Of Auditing Can Be Valuable To Future Accountants And Business
Decision Makers Whether Or Not They Plan To Become Auditors.
B) The Study Of Auditing Focuses On Learning The Analytical And Logical Skills
Necessary To Evaluate The Relevance And Reliability Of Information.
C) The Study Of Auditing Focuses On Learning The Rules, Techniques, And
Computations Required To Analyze Financial Statements.
D) The Study Of Auditing Begins With The Understanding Of A Coherent Logical
Framework And Techniques Useful For Gathering And Analyzing Evidence About
Others' Assertions.
ANSWER: C
Auditing Focuses On The Evaluation Of The Validity And Fairness Of Financial
Information, Not Merely On Learning Rules And Computations. It's About Developing
Critical Thinking Skills To Assess Reliability, Not Just About Applying Technical Rules.
,11) The Basic Definition Of Auditing States It Is A Process To:
A) Detect Fraud.
B) Examine Individual Transactions So That The Auditor May Certify As To Their
Validity.
C) Objectively Obtain And Evaluate Evidence Regarding Assertions.
D) Assure The Consistent Application Of Correct Accounting Procedures.
ANSWER: C
Auditing's Primary Objective Is To Evaluate Assertions Made By Management,
Typically Through Examining Evidence In A Systematic And Objective Manner, Not To
Guarantee Fraud Detection Or The Correctness Of Every Transaction.
12) Assurance Services May Improve All Of The Following Except:
A) Relevance.
B) Credibility.
C) Periodicity.
D) Reliability.
ANSWER: C
Assurance Services Focus On Improving The Relevance, Reliability, And Credibility Of
Information, But They Do Not Directly Affect The Periodicity (Timing) Of The
Information.
13) Evidence Is Most Reliable If It:
A) Signals The True State Of A Management Assertion.
B) Applies To The Period Being Audited.
C) Relates To The Audit Assertion Being Tested.
D) Is Sufficient To Justify A Conclusion.
, ANSWER: A
The Most Reliable Evidence Is That Which Genuinely Reflects The Accuracy Of The
Management Assertion. It's About Whether The Evidence Truly Confirms Or Disproves
What Is Being Asserted.
14) Which Of The Following Best Describes The Concept Of Audit Risk?
A) The Risk Of The Auditor Being Sued Because Of Association With An Auditee.
B) The Risk That The Auditor Will Provide A "Clean" Opinion On Financial Statements
That Are, In Fact, Materially Misstated.
C) The Overall Risk That A Material Misstatement Exists In The Financial Statements.
D) The Risk That Auditors Use Audit Procedures That Are Inappropriate.
ANSWER: B
Audit Risk Refers To The Possibility That The Auditor Might Issue An Unqualified
(Clean) Opinion On Financial Statements That Are, In Fact, Materially Misstated, Which
Is The Core Concern In Auditing.
15) An Auditor Who Accepts An Audit Engagement And Does Not Possess Expertise
With Respect To The Business Entity's Industry, Should:
A) Engage Financial Experts Familiar With The Nature Of The Business Entity.
B) Obtain A Knowledge Of Matters That Relate To The Nature Of The Entity's Business.
C) Refer A Substantial Portion Of The Audit To Another CPA, Who Will Act As The
Principal Auditor.
D) First Inform Management That An Unqualified Opinion Cannot Be Issued.
ANSWER: B
Auditing & Assurance Services 4th Edition (Canadian Edition), (2023)
By William F. Messier Jr, Steven M. Glover, Douglas F. Prawitt, Naomi Paisley, Gregory Springate
All Chapters 1-21| Latest Version With Verified Answers| Rated A+
From: [Bestmaxsolutions.stuvia
,PART ONE: INTRODUCTION TO ASSURANCE AND FINANCIAL STATEMENT AUDITING _______ 3
Chapter 01. An Introduction To Assurance And Financial Statement Auditing __________________ 3
Chapter 02: The Financial Statement Auditing Environment _______________________________ 24
PART TWO: AUDIT PLANNING AND BASIC AUDITING CONCEPTS ______________________ 43
Chapter 03: Audit Planning, Types Of Audit Tests, And Materiality _________________________ 43
Chapter 04: Risk Assessment ________________________________________________________ 64
Chapter 05: Evidence And Documentation _____________________________________________ 82
PART THREE: UNDERSTANDING AND AUDITING INTERNAL CONTROL _________________ 110
Chapter 06: Internal Control In A Financial Statement Audit ______________________________ 110
Chapter 07: Auditing Internal Control Over Financial Reporting ___________________________ 139
PART FOUR: STATISTICAL AND NONSTATISTICAL SAMPLING TOOLS FOR AUDITING ______ 160
Chapter 08: Audit Sampling: An Overview And Application To Tests Of Controls _____________ 160
Chapter 09: Audit Sampling: An Application To Substantive Tests Of Account Balances ________ 182
PART FIVE: AUDITING BUSINESS PROCESSES _____________________________________ 199
Chapter 10: Auditing The Revenue Process ___________________________________________ 199
Chapter 11: Auditing The Purchasing Process __________________________________________ 227
Chapter 12: Auditing The Human Resource Management Process _________________________ 252
Chapter 13: Auditing The Inventory Management Process _______________________________ 272
Chapter 14: Auditing The Financing/Investing Process: Prepaid Expenses, Intangible Assets,
Property, Plant, And Equipment, And Goodwill ________________________________________ 294
Chapter 15: Auditing The Financing/Investing Process: Long-Term Liabilities, Shareholders' Equity,
And Income Statement Accounts ___________________________________________________ 314
Chapter 16: Auditing The Financing/Investing Process: Cash And Investments _______________ 331
PART SIX: COMPLETING THE AUDIT AND REPORTING RESPONSIBILITIES _______________ 350
Chapter 17: Completing The Audit Engagement ________________________________________ 350
Chapter 18: Reports On Audited Financial Statements __________________________________ 378
PART SEVEN: PROFESSIONAL RESPONSIBILITIES ___________________________________ 402
Chapter 19: Professional Conduct, Independence, And Quality Control _____________________ 402
Chapter 20: Legal Liability _________________________________________________________ 423
PART EIGHT: ASSURANCE, ATTESTATION, AND INTERNAL AUDITING SERVICES __________ 440
Chapter 21: Assurance, Attestation, And Internal Auditing Services ________________________ 440
,PART ONE: INTRODUCTION TO ASSURANCE AND FINANCIAL STATEMENT AUDITING
Chapter 01. An Introduction To Assurance And Financial Statement Auditing
William F. Messier Jr: Auditing & Assurance Services 4th Edition (Canadian Edition), (2023) Test Bank
TRUE/FALSE
1) Auditing Focuses On Rules, Techniques, And Computations Required To Prepare And
Analyze Financial Information.
⊚ True
⊚ False
ANSWER: False
Auditing Focuses On Evaluating The Fairness Of Financial Statements And Internal
Controls, Not Just The Rules And Computations Used To Prepare Financial Information.
Auditing's Primary Objective Is To Provide An Independent Opinion On The Reliability
Of Financial Statements.
2) Decision Makers Demand Reliable Information That Is Provided By Accountants.
⊚ True
⊚ False
ANSWER: True
Decision-Makers, Such As Investors, Creditors, And Regulators, Rely On Accountants
To Provide Reliable Financial Information To Make Informed Decisions. Accountants
Ensure That Financial Data Is Accurate, Timely, And Trustworthy.
3) Information Asymmetry Seldom Occurs.
⊚ True
⊚ False
,ANSWER: False
Information Asymmetry Occurs Frequently, Especially In Agency Relationships Where
One Party (Management) Has More Or Better Information About A Company's Financial
Status Than The Other Party (Shareholders Or Creditors). This Imbalance Can Lead To
Issues Such As Moral Hazard Or Adverse Selection.
4) Conflicts Of Interest Often Occur Between Absentee Owners And Managers.
⊚ True
⊚ False
ANSWER: True
Conflicts Of Interest Often Arise Because Managers (Who Run The Company Day-To-
Day) May Have Different Incentives Than Absentee Owners (Shareholders). For
Instance, Managers May Prioritize Personal Benefits Over Shareholder Value, Leading
To Potential Agency Problems.
5) Auditing Services And Attest Services Are The Same.
⊚ True
⊚
ANSWER: False
Auditing Is A Type Of Attest Service, But Not All Attest Services Are Auditing. Attest
Services Encompass A Broader Range Of Assurance Services Where Auditors Or Other
Professionals Assess Or Express Opinions On Financial Statements Or Other
Information.
6) Auditing Is A Type Of Attest Service.
⊚ True (Correct Answer)
⊚ False
ANSWER: True
,Auditing Falls Under The Umbrella Of Attest Services, Where Auditors Provide An
Independent Examination Of Financial Statements And Offer An Opinion On Their
Fairness And Accuracy.
7) Testing All Transactions That Occurred During The Period Is Cost Prohibitive.
⊚ True
⊚ False
ANSWER: True
It Is Usually Impractical To Examine Every Transaction In A Large Company Due To
The Sheer Volume Of Transactions. Auditors Typically Use Sampling Techniques To
Evaluate The Financial Statements, As Testing All Transactions Would Be Inefficient
And Costly.
MULTIPLE CHOICE
8) Why Do Auditors Generally Use A Sampling Approach To Evidence Gathering?
A) Auditors Are Experts And Do Not Need To Look At Much To Know Whether The
Financial Statements Are Correct Or Not.
B) Auditors Must Balance The Cost Of The Audit With The Need For Precision.
C) Auditors Must Limit Their Exposure To Their Auditee To Maintain Independence.
D) The Auditor's Relationship With The Auditee Is Generally Adversarial, So The
Auditor Will Not Have Access To All Of The Financial Information Of The Company.
ANSWER: B
Auditors Use Sampling To Balance The Cost And Time Associated With The Audit With
The Need For A Reasonable Level Of Precision. Sampling Allows Them To Draw
Conclusions About The Entire Population Of Transactions Without Reviewing Each One.
,9) Which Of The Following Statements Best Describes A Relationship Between Sample
Size And Other Elements Of Auditing?
A) If Materiality Increases, So Will The Sample Size.
B) If The Desired Level Of Assurance Increases, Sample Sizes Can Be Smaller.
C) If Materiality Decreases, Sample Size Will Need To Increase.
D) There Is No Relationship Between Sample Size And Materiality Or The Desired
Level Of Assurance.
ANSWER: C
The Smaller The Materiality Threshold, The Greater The Sample Size Needed, As The
Auditor Must Be More Certain Of The Financial Statements’ Accuracy In Order To
Detect Smaller Misstatements.
10) Which Of The Following Statements About The Study Of Auditing Is NOT True?
A) The Study Of Auditing Can Be Valuable To Future Accountants And Business
Decision Makers Whether Or Not They Plan To Become Auditors.
B) The Study Of Auditing Focuses On Learning The Analytical And Logical Skills
Necessary To Evaluate The Relevance And Reliability Of Information.
C) The Study Of Auditing Focuses On Learning The Rules, Techniques, And
Computations Required To Analyze Financial Statements.
D) The Study Of Auditing Begins With The Understanding Of A Coherent Logical
Framework And Techniques Useful For Gathering And Analyzing Evidence About
Others' Assertions.
ANSWER: C
Auditing Focuses On The Evaluation Of The Validity And Fairness Of Financial
Information, Not Merely On Learning Rules And Computations. It's About Developing
Critical Thinking Skills To Assess Reliability, Not Just About Applying Technical Rules.
,11) The Basic Definition Of Auditing States It Is A Process To:
A) Detect Fraud.
B) Examine Individual Transactions So That The Auditor May Certify As To Their
Validity.
C) Objectively Obtain And Evaluate Evidence Regarding Assertions.
D) Assure The Consistent Application Of Correct Accounting Procedures.
ANSWER: C
Auditing's Primary Objective Is To Evaluate Assertions Made By Management,
Typically Through Examining Evidence In A Systematic And Objective Manner, Not To
Guarantee Fraud Detection Or The Correctness Of Every Transaction.
12) Assurance Services May Improve All Of The Following Except:
A) Relevance.
B) Credibility.
C) Periodicity.
D) Reliability.
ANSWER: C
Assurance Services Focus On Improving The Relevance, Reliability, And Credibility Of
Information, But They Do Not Directly Affect The Periodicity (Timing) Of The
Information.
13) Evidence Is Most Reliable If It:
A) Signals The True State Of A Management Assertion.
B) Applies To The Period Being Audited.
C) Relates To The Audit Assertion Being Tested.
D) Is Sufficient To Justify A Conclusion.
, ANSWER: A
The Most Reliable Evidence Is That Which Genuinely Reflects The Accuracy Of The
Management Assertion. It's About Whether The Evidence Truly Confirms Or Disproves
What Is Being Asserted.
14) Which Of The Following Best Describes The Concept Of Audit Risk?
A) The Risk Of The Auditor Being Sued Because Of Association With An Auditee.
B) The Risk That The Auditor Will Provide A "Clean" Opinion On Financial Statements
That Are, In Fact, Materially Misstated.
C) The Overall Risk That A Material Misstatement Exists In The Financial Statements.
D) The Risk That Auditors Use Audit Procedures That Are Inappropriate.
ANSWER: B
Audit Risk Refers To The Possibility That The Auditor Might Issue An Unqualified
(Clean) Opinion On Financial Statements That Are, In Fact, Materially Misstated, Which
Is The Core Concern In Auditing.
15) An Auditor Who Accepts An Audit Engagement And Does Not Possess Expertise
With Respect To The Business Entity's Industry, Should:
A) Engage Financial Experts Familiar With The Nature Of The Business Entity.
B) Obtain A Knowledge Of Matters That Relate To The Nature Of The Entity's Business.
C) Refer A Substantial Portion Of The Audit To Another CPA, Who Will Act As The
Principal Auditor.
D) First Inform Management That An Unqualified Opinion Cannot Be Issued.
ANSWER: B
