Auditing and Assurance Services Chapter 1 - 4

Auditing and Assurance Services Chapter 1 - 4




e. All of the above. - (correct Answer) - Which of the following would be considered an assurance
engagement?



a. Giving an opinion on a prize promoter's claims about the amount of sweepstakes prizes awarded in
the past.



b. Giving an opinion on the conformity of the financial statements of a university with generally accepted
accounting principles.



c. Giving an opinion on the fair presentation of a newspaper's circulation data.



d. Giving assurance about the average drive length achieved by golfers with a client's golf balls.



e. All of the above.

a. A potential conflict of interest always exists between the auditor and the management of the
enterprise under audit. - (correct Answer) - It is always a good idea for auditors to begin an audit with
the professional skepticism characterized by the assumption that



a. A potential conflict of interest always exists between the auditor and the management of the
enterprise under audit.



b. In audits of financial statements, the auditor acts exclusively in the capacity of an auditor.



c. The professional status of the independent auditor imposes commensurate professional obligations.



d. Financial statements and financial data are verifiable.

b. Prepare a written report containing a conclusion about the reliability of a management assertion. -

,(correct Answer) - In an attestation engagement, a CPA practitioner is engaged to



a. Compile a company's financial forecast based on management's assumptions without expressing any
form of assurance.



b. Prepare a written report containing a conclusion about the reliability of a management assertion.



c. Prepare a tax return using information the CPA has not audited or reviewed.



d. Give expert testimony in court on particular facts in a corporate income tax controversy.

d. Operational auditing - (correct Answer) - A determination of cost savings obtained by outsourcing
cafeteria services is most likely to be an objective of



a. Environmental auditing.



b. Financial auditing.



c. Compliance auditing.



d. Operational auditing.

b. The operational auditor is seeking to help management use resources in the most effective manner
possible. - (correct Answer) - The primary difference between operational auditing and financial auditing
is that in operational auditing



a. The operational auditor is not concerned with whether the audited activity is generating information
in compliance with financial accounting standards.



b. The operational auditor is seeking to help management use resources in the most effective manner
possible.

,c. The operational auditor starts with the financial statements of an activity being audited and works
backward to the basic processes involved in producing them.



d. The operational auditor can use analytical skills and tools that are not necessary in financial auditing

a. Enhance the degree of confidence that intended users can place in the financial statements - (correct
Answer) - According to the AICPA, the purpose of an audit of financial statements is to



a. Enhance the degree of confidence that intended users can place in the financial statements.



b. Express an opinion on the fairness with which they present financial position, results of operations,
and cash flows in conformity with accounting standards promulgated by the Financial Accounting
Standards Board.



c. Express an opinion on the fairness with which they present financial position, results of operations,
and cash flows in conformity with accounting standards promulgated by the U.S. Securities and Exchange
Commission.



d. Obtain systematic and objective evidence about financial assertions and report the results to
interested users.

d. They generally see a potential conflict of interest between company mangers who want to get loans
and the bank's needs for reliable financial statements. - (correct Answer) - Bankers who are processing
loan applications from companies seeking large loans will probably ask for financial statements audited
by an independent CPA because



a. Financial statements are too complex for the bankers to analyze themselves.



b. They are too far away from company headquarters to perform accounting and auditing themselves.



c. The consequences of making a bad loan are very undesirable.



d. They generally see a potential conflict of interest between company managers who want to get loans
and the bank's needs for reliable financial statements.

, d. All of the above - (correct Answer) - The Sarbanes-Oxley Act of 2002 prohibits public accounting firms
from providing which of the following services to an audit client?



a. Bookkeeping services.



b. Internal auditing services.



c. Valuation services.



d. All of the above.

b. Information risk faced by investors - (correct Answer) - Independent auditors of financial statements
perform audits that reduce



a. Business risks faced by investors.



b. Information risk faced by investors.



c. Complexity of financial statements.



d. Timeliness of financial statements.

d. Determine whether client personnel are following laws, rules, regulations, and policies. - (correct
Answer) - The primary objective of compliance auditing is to



a. Give an opinion on financial statements.



b. Develop a basis for a report on internal control.



c. Perform a study of effective and efficient use of resources.