Question 1

Which of the following best describes the concept of audit risk?

Accepted Answer

A)  The risk of the auditor being sued because of association with an audit client. 
B)  The risk that the auditor will provide an unqualified 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.

Question 2

Which of the following is not a concept that is included in the scope paragraph of the auditor's report?

Accepted Answer

A)  The conformance of the financial statements with generally accepted accounting principles. 
B)  The audit was conducted in accordance with applicable auditing standards. 
C)  The audit was planned and performed to obtain reasonable, rather than absolute, assurance. 
D)  An audit involves examining items on a test (i.e. sampling) basis.

Question 3

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 4

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 5

Which of the following best describes the fundamental,underlying reason for why there is demand for an independent auditor to report on financial statements?

Accepted Answer

A)  A management fraud may exist and it is more likely to be detected by auditors if they are independent. 
B)  Different interests may exist between the company preparing the statements and the parties using the statements. 
C)  A misstatement of account balances may exist and it is the independent auditor's responsibility to ensure that financial statements are not misstated. 
D)  A poorly designed internal control system may be in place.

Question 6

Conflicts of interest often occur between absentee owners and managers.

Accepted Answer

A) True 
 B)False

Exam 1: An Introduction to Assurance and Financial Statement Auditing