Question 1

Which of the following best describes why publicly-traded corporations follow the practice of having the external auditor appointed by the board of directors or elected by the stockholders?

Accepted Answer

A) To promote an adversarial relationship between the auditor and the corporation's management. 
B) To enhance auditor independence from the management of the corporation. 
C) To encourage a policy of rotation of the independent auditors. 
D) To give management more leverage over the auditor's decisions.

Question 2

Which of the following statements about the study of auditing is NOT true?

Accepted Answer

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.

Question 3

When obtaining an understanding of the entity and its environment, the auditor should obtain an understanding of internal controls primarily to:

Accepted Answer

A) identify areas of relatively high risk of misstatement and plan the audit accordingly. 
B) provide suggestions for improvement to the company. 
C) serve as a basis for setting audit risk and materiality. 
D) decide whether to perform an audit for the company.

Question 4

A standard, unqualified auditor's report for a public company contains three sections. Provide a brief (one or two sentences)description for each section.

Accepted Answer

The answer of A standard, unqualified auditor's report for a...

Question 5

For publicly-held companies, which of the following is integrated into the audit of financial statements?

Accepted Answer

A) Budgetary information audit. 
B) The audit of internal controls. 
C) Audit of management forecasts. 
D) Audit of interim financial statements.

Question 6

Explain the relationship between audit, attest and assurance services.

Accepted Answer

The answer of Explain the relationship between audit, attest and...

Question 7

You are a new employee at the accounting firm Murray & Murray, CPAs. Before you are assigned to your first audit, your supervisor tests your knowledge and asks you to explain the term "scope" in the context of a financial statement audit.
Required:
A. Provide a definition of scope.
B. Describe what influences an auditor's determination of scope.

Accepted Answer

The answer of You are a new employee at the...

Question 8

Assurance services may improve all of the following except:

Accepted Answer

A) relevance. 
B) credibility. 
C) periodicity. 
D) reliability.

Question 9

Preliminary engagement activities include:

Accepted Answer

A) evaluating internal controls. 
B) assessing audit risk at the account balance level. 
C) setting materiality. 
D) performing background checks on top management.

Question 10

On a high level, the accounting processes of a business consist of internal controls, individual transactions, and account balances.
Required:
A. Describe the relationship between internal controls, individual transactions, and account balances.
B. Discuss how evidence regarding each of these three areas can help an auditor determine if the financial statements are fairly stated.

Accepted Answer

The answer of On a high level, the accounting processes...

Question 11

Auditing is a type of attest service.

Accepted Answer

A) True 
 B)False

Question 12

You are a new staff auditor and you are auditing a company's inventory account. Briefly describe one way you might obtain direct evidence and one way you might obtain indirect evidence that the inventory account balance is fairly stated.

Accepted Answer

The answer of You are a new staff auditor and...

Question 13

Why do auditors generally use a sampling approach to evidence gathering?

Accepted Answer

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.

Question 14

Evidence is reliable if it:

Accepted Answer

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.

Question 15

Explain the relationship between sample size, materiality, and desired level of assurance.

Accepted Answer

The answer of Explain the relationship between sample size, materiality,...

Question 16

Conflicts of interest often occur between absentee owners and managers.

Accepted Answer

A) True 
 B)False

Question 17

Auditing services and attestation services are the same.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following would best be described as an assurance service?

Accepted Answer

A) Preparing a report representing a client's position during an IRS audit. 
B) Working with a company to develop a more efficient method of processing financial transactions. 
C) Offering an opinion concerning the accuracy of statements made on an entity's website relating to its online privacy policies. 
D) Assisting a company in identifying potential sources of capital for potential acquisitions.

Question 19

Why must an auditor assess materiality?

Accepted Answer

The answer of Why must an auditor assess materiality?...

Question 20

An investor is reading the financial statements of the Stankey Corporation and observes that the statements are accompanied by an auditor's unqualified report. From this, the investor may conclude that:

Accepted Answer

A) any disputes over significant accounting issues have been settled to the auditor's satisfaction. 
B) the auditor is satisfied that Stankey will be highly profitable in the future. 
C) the auditor is certain that Stankey's financial statements have been prepared accurately and that all account balances are precisely correct. 
D) the auditor has determined that Stankey's management is not qualified to lead the company.

Exam 1: An Introduction to Assurance and Financial Statement Auditing

Which of the following best describes why publicly-traded corporations follow the practice of having the external auditor appointed by the board of directors or elected by the stockholders?

Which of the following statements about the study of auditing is NOT true?

When obtaining an understanding of the entity and its environment, the auditor should obtain an understanding of internal controls primarily to:

A standard, unqualified auditor's report for a public company contains three sections. Provide a brief (one or two sentences)description for each section.

For publicly-held companies, which of the following is integrated into the audit of financial statements?

Explain the relationship between audit, attest and assurance services.

Assurance services may improve all of the following except:

Preliminary engagement activities include:

Auditing is a type of attest service.

You are a new staff auditor and you are auditing a company's inventory account. Briefly describe one way you might obtain direct evidence and one way you might obtain indirect evidence that the inventory account balance is fairly stated.

Why do auditors generally use a sampling approach to evidence gathering?

Evidence is reliable if it:

Explain the relationship between sample size, materiality, and desired level of assurance.

Conflicts of interest often occur between absentee owners and managers.

Auditing services and attestation services are the same.

Which of the following would best be described as an assurance service?

Why must an auditor assess materiality?

An investor is reading the financial statements of the Stankey Corporation and observes that the statements are accompanied by an auditor's unqualified report. From this, the investor may conclude that: