Test bank auditing; an international approach 7th 7e

Accessibility: Keyboard Navigation Blooms: Comprehension Difficulty: Moderate Learning Objective: 01-02 Distinguish auditing from accounting.. expectationsgap Accessibility: Keyboard Nav

Student: _

main reason that independent auditors report on a company's financial

of which economic theory problem?

5 The underlying conditions that create

demand by users for reliable financial information include the fact that

concept in accounting and auditing How is

it defined in the audit standards?

A

B

C

D

of independent external auditors?

A

B

C

D

obtain accounting information from companies wanting loans or selling stock, this creates a potential

A

B

C

D

10 The difference between what the public

expects of auditors and what auditors can actually deliver is known as

A

B

C

D

materially false and misleading is called

A

B

C

D

business operations and makes recommendations about all of the following EXCEPT

A

B

C

D

13 Auditors on staff in the Office of the Auditor

General of Canada (OAG) are considered to

be external auditors with respect to the government agencies they audit because the OAG is

A

B

C

D

14 In addition to the audit of financial

statements, comprehensive governmental auditing may also include audits of

efficiency, effectiveness, and

means that the auditor is expected to act in the interests of the party paying the audit fee

True False

18 The role of the auditor is to satisfy users'

demand for reliable information

True False

users' demand for accounting information are complexity, reliability, and

completeness

True False

20 The assurance function involves the lending

of credibility to financial information

True False

accountant affirming the validity of an assertion

True False

22 Business risk is the risk that the financial

statements do not reflect the economic substance of business activities

True False

affect a user's decision making

True False

risk that is due to incorrectly predicting future events

True False

auditing

True False

designed to add value and improve an organization's operations

True False

testing of compliance with laws and regulations

True False

business advisory services a PA firm can provide to a non-audit client

True False

29 Why is three-party accountability an

important distinguishing feature of auditing?

users' demand for accounting information

32 What is the difference between the

American Accounting Association's (AAA) definition of auditing and the Chartered Professional Accountants of Canada (CPA Canada) objectives of financial statement auditing?

35 What is information risk?

performs it?

audits and give three examples of its application

38 Discuss the conflict between the need for an

audit firm to perform quality services and itsdesire to make a profit in the context of the investor's need for reliable information

c1 Key

1 Which of the following best describes the

main reason that independent auditors report on a company's financial

statements?

A Managementfraudmayexistwithinthecompanyanditislikely

l detectit

B Usersoffinancia

l statementsneedconfidenceinthenumbersth

C Misstatedaccountbalancesmaybecorrectedastheresultoft

D Theaccountingsystemfrom

whichthefinancia

l statementsa

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Blooms: Comprehension Difficulty: Moderate Learning Objective: 01-01 Explain the importance of auditing.

Smieliauskas - Chapter 01 #1 Topic: 01-01 Introduction: The Concept of Auditing Topic: 01-02 A Simple Illustration of the Importance of Auditing

2 Reducing information risk means the same

as

A servingthepublicinterest

B monitoringeconomicactivities

C improvingthecredibilityofinformation

D ensuringgenerallyacceptedaccountingprinciplesareused

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Blooms: Knowledge Difficulty: Easy Learning Objective: 01-01 Explain the importance of auditing.

Smieliauskas - Chapter 01 #2 Topic: 01-01 Introduction: The Concept of Auditing Topic: 01-02 A Simple Illustration of the Importance of Auditing

3 Three-party accountability is a special case

of which economic theory problem?

A independence

B agency

C businessrisk

D forensics

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Blooms: Knowledge Difficulty: Easy Learning Objective: 01-01 Explain the importance of auditing.

Smieliauskas - Chapter 01 #3 Topic: 01-01 Introduction: The Concept of Auditing Topic: 01-02 A Simple Illustration of the Importance of Auditing

4 The agency problem can be mitigated by

A greatertransparency

B ahigherdegreeofindependence

C designofcontracts

D interna

l auditing

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Blooms: Comprehension Difficulty: Moderate Learning Objective: 01-01 Explain the importance of auditing.

Smieliauskas - Chapter 01 #4 Topic: 01-03 Agency Theory and Accountability

5 The underlying conditions that create

demand by users for reliable financial information include the fact that

A morereliableinformationwil

l allow

investorstocalculatet

herateofreturnontheirinvestment

B usersareseparatedfromaccountingrecordsbydistanceand

C governmentsrelyonsuchinformationtocreatetaxpolicies

D th

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Blooms: Knowledge Difficulty: Easy Learning Objective: 01-02 Distinguish auditing from accounting.

Smieliauskas - Chapter 01 #5 Topic: 01-05 Accounting

6 The auditee is the person or company

A whowil

l usetheauditedinformation

B whoperformsanaudit

C whopaystheauditfee

D whoseinformationisbeingaudited

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Blooms: Comprehension

Difficulty: Easy Learning Objective: 01-02 Distinguish auditing from accounting.

Smieliauskas - Chapter 01 #6 Topic: 01-06 More on Auditing

7 Professional judgment is a widely used

concept in accounting and auditing How is

it defined in the audit standards?

A Thereisnodefinitionofprofessiona

l judgmentintheauditi

ngstandards.

B Professiona

l judgmentincludesconsiderationofkeyprinci

C Professiona

l judgmentmeansreachingacomplexdecisionbyi

D Professiona

l judgmentinvolvesspecializedconceptsandlan

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Blooms: Knowledge Difficulty: Easy Learning Objective: 01-02 Distinguish auditing from accounting.

Smieliauskas - Chapter 01 #7 Topic: 01-06 More on Auditing

8 What is the primary role and responsibility

of independent external auditors?

A toprepareacompany'sannua

l financia

l statementsandnotes

.

B toperformanauditandprovideanopiniononthefinancia

l sta

C toprovidebusinessconsultingadvicetoauditclients.

D toobtainanunderstandingofaclient'sinterna

l contro

l sys

andprepareareportformanagementaboutcontro

l weakn

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Blooms: Comprehension Difficulty: Moderate Learning Objective: 01-02 Distinguish auditing from accounting.

Smieliauskas - Chapter 01 #8 Topic: 01-09 Audit Objective and the Auditor's Report

9 Since financial decision makers usually

obtain accounting information from companies wanting loans or selling stock, this creates a potential

A agencyproblem

B conflictofinterest

C harmonizationproblem

D expectationsgap

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Blooms: Knowledge Difficulty: Moderate Learning Objective: 01-02 Distinguish auditing from accounting.

Smieliauskas - Chapter 01 #9 Topic: 01-03 Agency Theory and Accountability

10 The difference between what the public

expects of auditors and what auditors can actually deliver is known as

A forensics

B anexpectationsgap

C abusinessrisk

D aninformationrisk

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Blooms: Knowledge Difficulty: Moderate Learning Objective: 01-02 Distinguish auditing from accounting.

Smieliauskas - Chapter 01 #10 Topic: 01-09 Audit Objective and the Auditor's Report

11 The risk that financial statements may be

materially false and misleading is called

A businessrisk

B informationrisk

C clientrisk

D riskassessment

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Blooms: Comprehension Difficulty: Moderate Learning Objective: 01-03 Explain the role of auditing in information risk reduction.

Smieliauskas - Chapter 01 #11 Topic: 01-10 A Definition of Auditing Relating to "Risk Reduction"

12 In operational auditing, the auditor studies

business operations and makes recommendations about all of the following EXCEPT

A economicandefficientuseofresources

B effectiveachievementofbusinessobjectives

C thefairnessofthefinancia

l statements

D compliancewithcompanypolicies

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Blooms: Knowledge Difficulty: Moderate Learning Objective: 01-04 Describe the other major types of audits and auditors.

Smieliauskas - Chapter 01 #12 Topic: 01-12 Internal and Operational Auditing

13 Auditors on staff in the Office of the Auditor

General of Canada (OAG) are considered to

be external auditors with respect to the government agencies they audit because the OAG is

A organizationallyindependent

B theaccountingandauditingagencyoftheCanadianSenate

C fundedbythefedera

l government

D guidedbystandardssimilartoGAAS

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Blooms: Knowledge Difficulty: Easy Learning Objective: 01-04 Describe the other major types of audits and auditors.

Smieliauskas - Chapter 01 #13 Topic: 01-13 Public Sector (Governmental) Auditing

14 In addition to the audit of financial

statements, comprehensive governmental auditing may also include audits of

efficiency, effectiveness, and

A fraud

B accuracy

C economy

D adequacy

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Blooms: Knowledge Difficulty: Easy Learning Objective: 01-04 Describe the other major types of audits and auditors.

Smieliauskas - Chapter 01 #14 Topic: 01-13 Public Sector (Governmental) Auditing

15 An example of a forensic accounting

assignment might be

A toensurecompliancewithspecificlegislation

B toprovideanopinionabouttheeffectivenessofagovernmen

tprogram

C toprovideassuranceaboutthefairnessofprospectivefinanc

D toestimatethevalueofinventorylostinawarehousefire

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Blooms: Application Difficulty: Moderate

Learning Objective: 01-04 Describe the other major types of audits and auditors.

Smieliauskas - Chapter 01 #15 Topic: 01-15 Fraud Auditing and Forensic Accounting

16 International harmonization is also known as

A convergence

B harmony

C independence

D critica

l thinking

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Blooms: Knowledge Difficulty: Easy Learning Objective: 01-05 Provide an overview of international auditing and its impact on Canadian auditing standards.

Smieliauskas - Chapter 01 #16 Topic: 01-20 International Auditing

means that the auditor is expected to act in the interests of the party paying the audit fee

FALSE

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Blooms: Comprehension Difficulty: Moderate Learning Objective: 01-01 Explain the importance of auditing.

Smieliauskas - Chapter 01 #17 Topic: 01-01 Introduction: The Concept of Auditing Topic: 01-02 A Simple Illustration of the Importance of Auditing

18 The role of the auditor is to satisfy users'

demand for reliable information

TRUE

Accessibility: Keyboard Navigation

Blooms: Knowledge Difficulty: Easy Learning Objective: 01-02 Distinguish auditing from accounting.

Smieliauskas - Chapter 01 #18 Topic: 01-06 More on Auditing

users' demand for accounting information are complexity, reliability, and

completeness

FALSE

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Blooms: Comprehension Difficulty: Moderate Learning Objective: 01-02 Distinguish auditing from accounting.

Smieliauskas - Chapter 01 #19 Topic: 01-05 Accounting

of credibility to financial information

TRUE

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Blooms: Knowledge Difficulty: Easy Learning Objective: 01-02 Distinguish auditing from accounting.

Smieliauskas - Chapter 01 #20 Topic: 01-06 More on Auditing Topic: 01-08 Definitions of Auditing

21 An attest engagement involves a public

accountant affirming the validity of an assertion

TRUE

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Blooms: Knowledge Difficulty: Moderate Learning Objective: 01-02 Distinguish auditing from accounting.

Smieliauskas - Chapter 01 #21 Topic: 01-08 Definitions of Auditing

22 Business risk is the risk that the financial

statements do not reflect the economic substance of business activities

FALSE

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Blooms: Knowledge Difficulty: Easy Learning Objective: 01-03 Explain the role of auditing in information risk reduction.

Smieliauskas - Chapter 01 #22 Topic: 01-10 A Definition of Auditing Relating to "Risk Reduction"

affect a user's decision making

TRUE

Accessibility: Keyboard Navigation

Blooms: Knowledge Difficulty: Easy Learning Objective: 01-03 Explain the role of auditing in information risk reduction.

Smieliauskas - Chapter 01 #23 Topic: 01-10 A Definition of Auditing Relating to "Risk Reduction"

risk that is due to incorrectly predicting future events

TRUE

Accessibility: Keyboard Navigation

Blooms: Knowledge Difficulty: Easy Learning Objective: 01-03 Explain the role of auditing in information risk reduction.

Smieliauskas - Chapter 01 #24 Topic: 01-10 A Definition of Auditing Relating to "Risk Reduction"

auditing

FALSE

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Blooms: Comprehension Difficulty: Moderate Learning Objective: 01-04 Describe the other major types of audits and auditors.

Smieliauskas - Chapter 01 #25 Topic: 01-15 Fraud Auditing and Forensic Accounting

26 Internal auditing is an independent activity

designed to add value and improve an organization's operations

TRUE

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Blooms: Knowledge Difficulty: Moderate Learning Objective: 01-04 Describe the other major types of audits and auditors.

Smieliauskas - Chapter 01 #26 Topic: 01-12 Internal and Operational Auditing

testing of compliance with laws and regulations

FALSE

Accessibility: Keyboard Navigation

Blooms: Comprehension Difficulty: Moderate Learning Objective: 01-04 Describe the other major types of audits and auditors.

Smieliauskas - Chapter 01 #27 Topic: 01-13 Public Sector (Governmental) Auditing

business advisory services a PA firm can provide to a non-audit client

TRUE

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Blooms: Comprehension

Difficulty: Easy Learning Objective: 01-04 Describe the other major types of audits and auditors.

Smieliauskas - Chapter 01 #28 Topic: 01-19 Assurance Services

29 Why is three-party accountability an

important distinguishing feature of auditing?

In three-party accountability, accountability

is represented as a three-point relationship among the auditor of the financial

information, the management preparing the financial information, and the users of the financial information This triangle reflects

an accountability relationship because management is accountable to the users However, the users cannot rely on the financial statements because they do not completely trust management They demand that the financial statements be verified by a competent, independent auditor Thus, the auditor is also accountable to the user

Blooms: Comprehension Difficulty: Moderate Learning Objective: 01-01 Explain the importance of auditing.

Smieliauskas - Chapter 01 #29 Topic: 01-01 Introduction: The Concept of Auditing Topic: 01-02 A Simple Illustration of the Importance of Auditing

An agency problem occurs when three conditions are present in an agency relationship: (a) the agent has objectives that are different from those of the principal,(b) the agent has more information than theprincipal does, and (c) the contract betweenthe two is incomplete in that not every possible contingency can be anticipated

Blooms: Comprehension

Difficulty: Easy Learning Objective: 01-01 Explain the importance of auditing.

Smieliauskas - Chapter 01 #30 Topic: 01-03 Agency Theory and Accountability