,DOWNLOAD THE Test Bank for Auditing Practical Approach with Data
Analytics 2nd Edition Johnson
Johnson Auditing, 2E Chapter 1
Chapter 1
Introduction and Overview of Audit
and Assurance
Question Type: True or False
1. GAAP and IFRS are examples of applicable financial reporting framework.
A. True
B. False
Ans: A, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communication, AICPA FC: Reporting
Solution: The applicable financial reporting framework refers to the set of standards used in preparing
the historical financial statements, such as GAAP, IFRS or a Federal Income Tax Basis of Accounting.
2. Review of financial forecasts falls under attestation services.
A. True
B. False
Ans: A, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Ethics, AICPA FC: Measurement Analysis and
Interpretation
Solution: Attestation services (under the umbrella of assurance services) include review of historical
financial statements, review of financial forecasts, and examination of internal control.
3. Within a U.S. context, the applicable financial reporting framework is typically
Generally Accepted Accounting Principles (GAAP).
A. True
B. False
Ans: A, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Ethics, AICPA FC: Measurement Analysis and
Interpretation
Solution: Within a U.S. context, the applicable financial reporting framework is typically generally
accepted accounting principles (GAAP).
4. Private companies, or non-issuers, are not required by the U.S. government to have
an annual financial statement audit
A. True
B. False
Ans: A, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA FC: Reporting
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,DOWNLOAD THE Test Bank for Auditing Practical Approach with Data
Analytics 2nd Edition Johnson
Johnson Auditing, 2E Chapter 1
Solution: Private companies, or non-issuers, are not required by the U.S. government to have an
annual financial statement audit, but often other interested users, such as a bank or lender, may
request that a private company provide audited financial statements.
5. One of the reasons there is a demand for financial statement audits is that users of
financial statements often lack accounting and legal knowledge to fully understand
complex accounting and disclosure choices.
A. True
B. False
Ans: A, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA PC: Communication
Solution: Financial statements are complex, the amounts are often affected by significant estimates,
and the disclosures often require significant knowledge and experience to evaluate. Most financial
statement users do not have the accounting and legal knowledge to assess the reasonableness of
complex accounting and disclosure choices being made by the company.
6. In financial accounting, the balance sheet is a statement of financial position
A. True
B. False
Ans: A, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA PC: Communication
Solution: In financial accounting, the financial statements include the balance sheet (statement of
financial position), income statement (statement of comprehensive income), statement of cash flows,
statement of changes in equity and accompanying notes.
7. Business valuation falls within the purview of non-assurance services.
A. True
B. False
Ans: A, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA FC: Measurement Analysis and
Interpretation
Solution: Many of these accounting firms provide non-assurance (or non-audit) services as well as
assurance services. These non-assurance services include management consulting, business valuation,
mergers and acquisitions, insolvency, tax and accounting services.
8. Securities Exchange Act of 1934 regulates the ongoing trading of securities after the
initial public offering and requires the annual audit of a public company’s financial
statements.
A. True
B. False
Ans: A, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Ethics, AICPA BB: Governance Perspective
Solution: The Securities Exchange Act of 1934 regulates the ongoing trading of securities after the
initial public offering and requires the annual audit of a public company’s financial statements.
Copyright © 2022 WILEY Test Bank (For Instructor Use Only) 1-2
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, DOWNLOAD THE Test Bank for Auditing Practical Approach with Data
Analytics 2nd Edition Johnson
Johnson Auditing, 2E Chapter 1
9. The Securities Act of 1933 enhances annual financial disclosures for public
companies and placed more emphasis on corporate responsibility.
A. True
B. False
Ans: B, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Ethics, AICPA BB: Governance Perspective
Solution: The Securities Act of 1933 regulates the disclosure of financial information in a company’s
initial public offering of stock and requires that the financial information be audited.
10. Neither client characteristics nor actions of the auditor affect the audit risk.
A. True
B. False
Ans: B, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Ethics, AICPA FC: Reporting
Solution: Audit risk is affected by client characteristics as well as actions of the auditor.
11. Materiality is a relative concept, and it differs from company to company and from
year to year for a given company.
A. True
B. False
Ans: A, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Ethics, AICPA FC: Reporting
Solution: Materiality is a relative concept, and it differs from company to company and from year to
year for a given company. Auditors design an audit to provide reasonable assurance that the financial
statements are free of material misstatement. However, auditors do not design an audit to look for
immaterial misstatements because they would not influence a financial statement user.
12. When auditors determine that the financial statements of a public company are
presented fairly in accordance with the applicable financial reporting
framework, they issue a type of report that PCAOB standards call “the standard
clean report.”
A. True
B. False
Ans: B, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Ethics, AICPA FC: Reporting
Solution: If auditors have determined the financial statements are presented fairly in accordance with
the applicable financial reporting framework, they issue the standard unqualified report. The PCAOB
standards use the term “unqualified” report.
13. In an unqualified audit report on the financial statements of a public company, the
concluding statement of the Basis for Opinion paragraph mentions reasonable basis
for the audit firm’s opinion.
A. True
B. False
Copyright © 2022 WILEY Test Bank (For Instructor Use Only) 1-3
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Analytics 2nd Edition Johnson
Johnson Auditing, 2E Chapter 1
Chapter 1
Introduction and Overview of Audit
and Assurance
Question Type: True or False
1. GAAP and IFRS are examples of applicable financial reporting framework.
A. True
B. False
Ans: A, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communication, AICPA FC: Reporting
Solution: The applicable financial reporting framework refers to the set of standards used in preparing
the historical financial statements, such as GAAP, IFRS or a Federal Income Tax Basis of Accounting.
2. Review of financial forecasts falls under attestation services.
A. True
B. False
Ans: A, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Ethics, AICPA FC: Measurement Analysis and
Interpretation
Solution: Attestation services (under the umbrella of assurance services) include review of historical
financial statements, review of financial forecasts, and examination of internal control.
3. Within a U.S. context, the applicable financial reporting framework is typically
Generally Accepted Accounting Principles (GAAP).
A. True
B. False
Ans: A, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Ethics, AICPA FC: Measurement Analysis and
Interpretation
Solution: Within a U.S. context, the applicable financial reporting framework is typically generally
accepted accounting principles (GAAP).
4. Private companies, or non-issuers, are not required by the U.S. government to have
an annual financial statement audit
A. True
B. False
Ans: A, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA FC: Reporting
Copyright © 2022 WILEY Test Bank (For Instructor Use Only) 1-1
mynursytest.store
,DOWNLOAD THE Test Bank for Auditing Practical Approach with Data
Analytics 2nd Edition Johnson
Johnson Auditing, 2E Chapter 1
Solution: Private companies, or non-issuers, are not required by the U.S. government to have an
annual financial statement audit, but often other interested users, such as a bank or lender, may
request that a private company provide audited financial statements.
5. One of the reasons there is a demand for financial statement audits is that users of
financial statements often lack accounting and legal knowledge to fully understand
complex accounting and disclosure choices.
A. True
B. False
Ans: A, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA PC: Communication
Solution: Financial statements are complex, the amounts are often affected by significant estimates,
and the disclosures often require significant knowledge and experience to evaluate. Most financial
statement users do not have the accounting and legal knowledge to assess the reasonableness of
complex accounting and disclosure choices being made by the company.
6. In financial accounting, the balance sheet is a statement of financial position
A. True
B. False
Ans: A, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA PC: Communication
Solution: In financial accounting, the financial statements include the balance sheet (statement of
financial position), income statement (statement of comprehensive income), statement of cash flows,
statement of changes in equity and accompanying notes.
7. Business valuation falls within the purview of non-assurance services.
A. True
B. False
Ans: A, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA FC: Measurement Analysis and
Interpretation
Solution: Many of these accounting firms provide non-assurance (or non-audit) services as well as
assurance services. These non-assurance services include management consulting, business valuation,
mergers and acquisitions, insolvency, tax and accounting services.
8. Securities Exchange Act of 1934 regulates the ongoing trading of securities after the
initial public offering and requires the annual audit of a public company’s financial
statements.
A. True
B. False
Ans: A, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Ethics, AICPA BB: Governance Perspective
Solution: The Securities Exchange Act of 1934 regulates the ongoing trading of securities after the
initial public offering and requires the annual audit of a public company’s financial statements.
Copyright © 2022 WILEY Test Bank (For Instructor Use Only) 1-2
mynursytest.store
, DOWNLOAD THE Test Bank for Auditing Practical Approach with Data
Analytics 2nd Edition Johnson
Johnson Auditing, 2E Chapter 1
9. The Securities Act of 1933 enhances annual financial disclosures for public
companies and placed more emphasis on corporate responsibility.
A. True
B. False
Ans: B, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Ethics, AICPA BB: Governance Perspective
Solution: The Securities Act of 1933 regulates the disclosure of financial information in a company’s
initial public offering of stock and requires that the financial information be audited.
10. Neither client characteristics nor actions of the auditor affect the audit risk.
A. True
B. False
Ans: B, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Ethics, AICPA FC: Reporting
Solution: Audit risk is affected by client characteristics as well as actions of the auditor.
11. Materiality is a relative concept, and it differs from company to company and from
year to year for a given company.
A. True
B. False
Ans: A, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Ethics, AICPA FC: Reporting
Solution: Materiality is a relative concept, and it differs from company to company and from year to
year for a given company. Auditors design an audit to provide reasonable assurance that the financial
statements are free of material misstatement. However, auditors do not design an audit to look for
immaterial misstatements because they would not influence a financial statement user.
12. When auditors determine that the financial statements of a public company are
presented fairly in accordance with the applicable financial reporting
framework, they issue a type of report that PCAOB standards call “the standard
clean report.”
A. True
B. False
Ans: B, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Ethics, AICPA FC: Reporting
Solution: If auditors have determined the financial statements are presented fairly in accordance with
the applicable financial reporting framework, they issue the standard unqualified report. The PCAOB
standards use the term “unqualified” report.
13. In an unqualified audit report on the financial statements of a public company, the
concluding statement of the Basis for Opinion paragraph mentions reasonable basis
for the audit firm’s opinion.
A. True
B. False
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