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Trang 186 Free Test Bank for Auditing and Assurance
Services An Applied Approach 1st
Edition by Stuart
Multiple Choice Questions
The Auditing Standards Board gets its authority to write auditing regulations from
1 A the misapplication of auditing procedures
2 B rule 3001 of the PCAOB Code of Professional Conduct
3 C rule 202 of the AICPA Code of Professional Conduct
4 D the Securities and Exchange Commission
The audit opinion states whether the financial statements have been prepared in accordance with an applicable financial
reporting framework In other words, the opinion states whether
1 A the company has followed the accounting standards in supporting the audit
2 B the audit was conducted in accordance with Generally Accepted
Accounting Principles
3 C the auditing standards required management to prepare the financial statements and to maintain a system of internal controls relevant to the financial statements
4 D the audit committee provided the auditor with all the information relevant
to the preparation of the financial statements and unrestricted access to those in the company from whom the auditor may need additional evidence
Throughout the planning and performance of the audit, auditors are responsible for
1 A having appropriate competence and capabilities to review the audit
2 B complying with client ethical requirements
3 C complying with relevant independence and due care requirements
4 D maintaining professional appearance and exercising professional
questioning
Trang 2One of the characteristics of a principal-agent relationship is:
1 A The owners of the company are not involved in the daily management of the company
2 B The owners of the company hire an auditor to run the company for them and to make daily decisions for the company
3 C The owners have more knowledge than management about the daily operations of the company
4 D Outsiders benefit when a manager is hired by owners to protect their interests in the company because the information available to outsiders is more likely to correspond to financial accounting standards
One of the characteristics of a principal-agent relationship is:
1 A The owners of the company are involved in the daily management of the company
2 B The owners of the company hire an agent to run the company for them and to make daily decisions for the company
3 C The owners have more knowledge than management about the daily operations of the company
4 D Outsiders benefit when a manager is hired by owners to protect their interests in the company because the information available to outsiders is more likely to correspond to financial accounting standards
To obtain reasonable assurance, which is a high, but not absolute level of assurance, the auditor:
1 A plans the work and properly supervises any assistants
2 B assumes appropriate materiality level or levels
3 C identifies and assesses risks of fraud based on an understanding of the entity and its environment, including the entity's internal control
4 D obtains sufficient appropriate management representations about
whether material misstatements exist
The areas where management is more likely to misstate
transactions are riskier for the auditor because
1 A the auditor will be the subject of legal action
2 B the auditor probably will not have enough time to identify these areas
Trang 33 C failing to correct the misstatements may lead to issuing a clean opinion
on materially misstated financial statements
4 D failing to correct the misstatements may lead to issuing a qualified opinion on materially misstated financial statements
Which of the following best describes "attest" services?
1 A The auditor attests to the quality of some type information
2 B The auditor attests to the source of some type of information
3 C The auditor attests to the accuracy of some type of information
4 D The auditor attests to the quantity of some type of information
The three standard setting organizations that are involved in
establishing auditing standards are
1 A The American Association of Accountants, the Auditing Standards Board, and the Public Company Accounting Oversight Board
2 B The International Auditing and Assurance Standards Board, the Auditing Standards Board, and the Public Company Accounting Oversight Board
3 C The American Association of Accountants, the Auditing Standards Board, and the International Auditing and Assurance Standards Board
4 D The Auditing Standards Board, the International Auditing and AssuranceStandards Board, and the Public Company Accounting Oversight Board
Throughout the planning and performance of the audit, auditors are responsible for
1 A having appropriate competence and capabilities to review the audit
2 B complying with relevant ethical requirements
3 C complying with relevant independence and fraud detection requirements
4 D maintaining professional appearance and exercising professional
questioning
Throughout the planning and performance of the audit, auditors are responsible for
1 A having appropriate competence and capabilities to review the audit
2 B complying with client ethical requirements
3 C complying with relevant independence and fraud detection requirements
Trang 44 D maintaining professional skepticism and exercising professional
judgment
Which of the following will allow a company to report higher net income?
1 A recording fictitious expenses at the beginning of the year
2 B recording fictitious revenue at the end of the year
3 C depreciating long lived assets
4 D increasing a line of credit at a bank
Which of the following is a characteristic of the person doing the assessment of the financial statements?
1 A The person completing the assessment is an employee of the company
2 B The person completing the assessment works for an accounting firm that
is associated with the company only in a role of being hired to perform an audit
3 C The person performing the assessment may be a banker, current or potential stockholder, or a regulatory body
4 D The person performing the assessment makes adjustments to the decisions recorded by the firm so that outsiders have accurate information tomake decisions
Which of the following is an accurate statement about the
4 D The auditor's responsibility to management to provide financial
information consistent with accounting regulations has never been more important
Trang 5The Preface to the Auditing Standards describes the fundamental principles that govern an audit According to these principles, the purpose of an audit is
1 A to provide reasonable assurance that there are no misstatements in the financial statements
2 B to plan the audit to provide reasonable assurance of detecting fraud
3 C to ensure that the financial statements are fairly presented
4 D to increase the level of confidence that outsiders place in the financial statements
Which of the following is not an example of auditors' strong
bargaining position with management?
1 A The high financial and social costs reflect both public interest and
business necessity
2 B The public value of the audit cannot be too highly emphasized
3 C Audit firms can be use the audit process as a "loss leader."
4 D The negative impact of failed audits is apparent to observers of the profession, loss of public confidence, and an investors' trust
Which of the following is a characteristic of the person doing the assessment of the financial statements?
1 A The person completing the assessment is not an employee of the
company
2 B The person completing the assessment works for an accounting firm that
is associated with the company in a role of being hired to perform an internalaudit
3 C The person performing the assessment may be a banker, current or potential stockholder, or a regulatory body
4 D The person performing the assessment makes adjustments to the decisions recorded by the firm so that outsiders have accurate information tomake decisions
Which of the following is not an important part of the audit
process?
Trang 61 A understanding incentives of the company to misstate the financial
statements
2 B identifying the financial statement accounts with the greatest potential formisstatements
3 C documenting management's efforts to achieve the necessary
requirements to gain a bank loan
4 D designing audit procedures to determine that the accounts are fairly presented according to the applicable financial reporting framework
Growth in revenue is an important factor for many companies The desired outcome in many businesses is for revenue and possibly net income to increase at a rate at least equal to the prior year's increase Which of the following best explains this desire?
1 A If the company does not meet this level of growth, it is an indication that the company may not be able to meet the dividend expectations of investors
2 B Outsiders, particularly stockholders expect this level of growth, and if companies fail to meet these targets, their stock price may drop as investors sell their stock and find other companies who can meet the growth level desired
3 C Management is concerned that failure to achieve expected levels of growth may result in management not receiving anticipated bonuses
4 D Management is concerned that if the company does not achieve the expected increase in growth, that the auditors will demand a higher fee and expend greater effort in attempting to find misstatements in the financial statements
Throughout the planning and performance of the audit, auditors are responsible for
1 A having appropriate competence and capabilities to perform the audit
2 B complying with client ethical requirements
3 C complying with relevant independence and fraud detection requirements
4 D maintaining professional appearance and exercising professional
questioning
To obtain reasonable assurance, which is a high, but not absolute level of assurance, the auditor:
Trang 71 A performs the work and properly supervises the client
2 B assumes appropriate materiality level or levels
3 C identifies and assesses risks of fraud based on an understanding of the entity and its environment, including the entity's internal control
4 D obtains sufficient appropriate audit evidence about whether material misstatements exist
To obtain reasonable assurance, which is a high, but not absolute level of assurance, the auditor:
1 A performs the work and properly supervises the client
2 B determines appropriate materiality level or levels
3 C identifies and assesses risks of due to fraud based on an understanding
of the entity and its environment, including the entity's internal control
4 D obtains sufficient appropriate management representations about
whether material misstatements exist
The principle reason(s) for public companies to misstate financial statements is to
1 A minimize the amount of taxes owed by the company
2 B maximize the amount of dividends paid to shareholders
3 C satisfy the requirement of a going concern
4 D keep the company's stock price from falling
One of the characteristics of a principal-agent relationship is:
1 A The owners of the company are involved in the daily management of the company
2 B The owners of the company hire an auditor to run the company for them and to make daily decisions for the company
3 C The owners have more knowledge than management about the daily operations of the company
4 D Outsiders benefit when an auditor is hired by owners to protect their interests in the company because the information available to outsiders is more likely to correspond to financial accounting standards
One of the differences between a corporate form of organization and partnership form is:
Trang 81 A Someone in the corporate form has personal liability.
2 B Corporations can have offices in only one state
3 C Someone in the partnership form has personal liability
4 D Partnerships can have offices in only one state
To obtain reasonable assurance, which is a high, but not absolute level of assurance, the auditor:
1 A performs the work and properly supervises the client
2 B assumes appropriate materiality level or levels
3 C identifies and assesses risks of material misstatement, whether due to fraud or error, based on an understanding of the entity and its environment, including the entity's internal control
4 D obtains sufficient appropriate management representations about
whether material misstatements exist
Which of the following is an incorrect statement about auditors' professional duties?
1 A In their professional duties, they will be watched by federal and state regulators and interested outsiders
2 B Attention will be focused on the auditors' responsibility to determine whether the financial statements present fairly the financial position of the firm and the results of operations
3 C Auditors must understand the importance of presenting unbiased
information to outsiders
4 D The auditor is expected to approach an audit with an independent mind and to recognize that he or she is hired to protect the interests of
management
86 Free Test Bank for Auditing and Assurance
Services An Applied Approach 1st Edition by Stuart Multiple Choice Questions - Page 2
In the gathering of evidence, several concepts are important At the beginning of the audit, the auditor presents his credentials to the client as
Trang 91 A an individual with training and knowledge in accounting and auditing
2 B an individual who will be sensitive to good client relations
3 C someone with the knowledge to make good business decisions
4 D someone who will exercise good judgment
Which of the following is not a type of evidence gathered by the auditor?
1 A substantive evidence
2 B internal control evidence
3 C factual evidence
4 D analytical procedure evidence
The International Auditing and Assurance Standards Board
1 A is the standard-setting board for the International Federation of
Accountants
2 B is a committee of the AICPA
3 C reports directly to the SEC
4 D adjusts international standards to U.S GAAP
Professional skepticism is closely linked to due professional care For an auditor to gather evidence with due professional care, he
or she must perform the audit with an attitude of professional skepticism Which of the following best describes professional skepticism?
1 A an attitude of professional skepticism is present when the auditor
maintains a questioning mind and makes a critical assessment of the
interviews gathered
2 B professional skepticism is used in the planning stage to determine the evidence to be gathered and the interpretation of the evidence
3 C if the auditor applies the concept of professional skepticism, he should
be able to obtain reasonable assurance that the financial statements are freefrom material misstatements
4 D professional skepticism assumes that the client is dishonest
The auditor must gather evidence guided by the standard of due professional care Due professional care requires
Trang 101 A the auditor to perform audit duties with skill comparable to that of any other client
2 B to gather statements and interpret statements in a manner that any otherprofessional would have done
3 C the auditor to know accounting and auditing requirements
4 D the auditor to be knowledgeable about the client
Which of the following statements describe an analytical
procedure?
1 A Analytical procedures are a form of evidence gathered by the auditor
2 B Analytical procedures are calculations of financial amounts
3 C Analytical procedures are a comparison of last year's unaudited financialstatements with the current year's audited statements
4 D Analytical procedures are a form of internal control audit procedure
An important requirement of the auditing standards is that the auditor
1 A have no contact with the audit committee of the board of directors
2 B use the work of the internal audit staff
3 C assist management in the preparation of the financial statements
4 D gather sufficient appropriate evidence
The auditor must gather evidence guided by the standard of due professional care Due professional care requires the auditor
1 A to perform audit duties with skill comparable to that of any other auditor
2 B to gather statements and interpret statements in a manner that any otherprofessional would have done
3 C to know accounting and auditing requirements
4 D to be knowledgeable about the economy
Which of the following statements describe an analytical
procedure?
1 A Analytical procedures are a form of evidence gathered by the client
2 B Analytical procedures are calculations of financial ratios
3 C Analytical procedures are a comparison of last year's unaudited financialstatements with the current year's audited statements
Trang 114 D Analytical procedures are a form of internal control audit procedure
If the financial statements do not present fairly the financial
condition of the firm in accordance with applicable financial
reporting framework, the auditor should
1 A calculate the correct number and make an adjustment to the financial statements
2 B advise management of the discrepancy and stop auditing until the discrepancy is corrected
3 C gather sufficient evidence to arrive at the correct financial statement number
4 D review the risk assessment and make any necessary revisions
Which of the following is correct about the PCAOB?
1 A The PCAOB receives its authority from the SEC
2 B Auditing standards issued by the PCAOB must be approved by the U.S Congress
3 C Anyone who wants to purchase stock on a U.S stock exchange must follow the rules of the SEC
4 D All audit firms performing audits of public companies are registered with and agree to comply with the auditing standards established by the PCAOB
Before the creation of the PCAOB, the auditing standards of the Auditing Standards Board were used to audit all companies Which statement best describes the PCAOB and auditing
standards?
1 A In 2003, the PCAOB adopted certain auditing standards of the ASB as interim standards
2 B In 2003, the PCAOB developed over 100 new auditing standards
3 C In 2003, the PCAOB developed audit standards to audit all companies, private and public
4 D In 2003, the PCAOB adopted all the standards of the AICPA to save time in the development of new standards
Substantive tests answer the question