BYU ACC 406 FINAL EXAM WITH
CORRECT QUESTIONS AND ANSWERS
2025
Why does demand for auditing exist in a free-market economy, even if it were not required by
regulation? - CORRECT-ANSWERSDue to the nature of the agency relationship, natural conflict
of interest, and information asymmetry between an absentee owner and manager
T/F Auditing is different from most other accounting courses because learning auditing largely
involves memorizing technical formulas and rules. - CORRECT-ANSWERSFalse
Which of the following is the best definition for financial statement auditing? - CORRECT-
ANSWERSA systematic process of objectively obtaining and evaluating evidence to determine
and communicate whether economic assertions are reported in accordance with established
criteria.
,Following are five of the phases in the financial statement audit process. Select the item (a-d)
that places the phases in the proper order.
I. Consider and audit internal control
II. Evaluate results and issue the audit report
III. Client acceptance/continuance
IV. Audit business processes and related accounts
V. Plan the audit - CORRECT-ANSWERSIII, V, I, IV, II
The risk that a material misstatement occurs, goes undetected by the client's internal control
structure, and is not detected by the auditor, who unknowingly issues a "clean" audit report is
known as: - CORRECT-ANSWERSaudit risk
Which of the following statements is correct concerning the concept of materiality? -
CORRECT-ANSWERSNo formal requirements exist for determining materiality—it is a matter
of professional judgment.
,T/F It is management's responsibility to ensure that the company's financial statements are
prepared in accordance with GAAP. It is the auditor's responsibility to provide reasonable
assurance that the financial statements are free of material misstatement. - CORRECT-
ANSWERStrue
T/F Tests of details of balances emphasize testing the detail amounts that make up the ending
balances in the general ledger. - CORRECT-ANSWERStrue
T/F Tests of controls are concerned with evaluating whether controls are sufficiently effective
to justify reducing control risk further from the planned level and increasing reliance on
substantive tests. - CORRECT-ANSWERSfalse
T/F Substantive tests of transactions emphasize the verification of dollar amounts of
transactions recorded in the journals and then posted in the general ledger. - CORRECT-
ANSWERStrue
, T/F Tests of controls are required on any audit of a private company where the auditor believes
the controls are either inappropriately designed or the implementation of the control is
ineffective. - CORRECT-ANSWERSfalse
A dual-purpose test - CORRECT-ANSWERSIs both a substantive test of transactions and a test
of controls.
Which of the following statements is not correct about materiality?
A. The concept of materiality recognizes that some matters are important to users for fair
presentation of the financial statements in conformity with GAAP, while other matters are not
important.
B. Materiality is defined as the total amount of each misstatement that could be material to any
one of the financial statements individually.
CORRECT QUESTIONS AND ANSWERS
2025
Why does demand for auditing exist in a free-market economy, even if it were not required by
regulation? - CORRECT-ANSWERSDue to the nature of the agency relationship, natural conflict
of interest, and information asymmetry between an absentee owner and manager
T/F Auditing is different from most other accounting courses because learning auditing largely
involves memorizing technical formulas and rules. - CORRECT-ANSWERSFalse
Which of the following is the best definition for financial statement auditing? - CORRECT-
ANSWERSA systematic process of objectively obtaining and evaluating evidence to determine
and communicate whether economic assertions are reported in accordance with established
criteria.
,Following are five of the phases in the financial statement audit process. Select the item (a-d)
that places the phases in the proper order.
I. Consider and audit internal control
II. Evaluate results and issue the audit report
III. Client acceptance/continuance
IV. Audit business processes and related accounts
V. Plan the audit - CORRECT-ANSWERSIII, V, I, IV, II
The risk that a material misstatement occurs, goes undetected by the client's internal control
structure, and is not detected by the auditor, who unknowingly issues a "clean" audit report is
known as: - CORRECT-ANSWERSaudit risk
Which of the following statements is correct concerning the concept of materiality? -
CORRECT-ANSWERSNo formal requirements exist for determining materiality—it is a matter
of professional judgment.
,T/F It is management's responsibility to ensure that the company's financial statements are
prepared in accordance with GAAP. It is the auditor's responsibility to provide reasonable
assurance that the financial statements are free of material misstatement. - CORRECT-
ANSWERStrue
T/F Tests of details of balances emphasize testing the detail amounts that make up the ending
balances in the general ledger. - CORRECT-ANSWERStrue
T/F Tests of controls are concerned with evaluating whether controls are sufficiently effective
to justify reducing control risk further from the planned level and increasing reliance on
substantive tests. - CORRECT-ANSWERSfalse
T/F Substantive tests of transactions emphasize the verification of dollar amounts of
transactions recorded in the journals and then posted in the general ledger. - CORRECT-
ANSWERStrue
, T/F Tests of controls are required on any audit of a private company where the auditor believes
the controls are either inappropriately designed or the implementation of the control is
ineffective. - CORRECT-ANSWERSfalse
A dual-purpose test - CORRECT-ANSWERSIs both a substantive test of transactions and a test
of controls.
Which of the following statements is not correct about materiality?
A. The concept of materiality recognizes that some matters are important to users for fair
presentation of the financial statements in conformity with GAAP, while other matters are not
important.
B. Materiality is defined as the total amount of each misstatement that could be material to any
one of the financial statements individually.
