1
Independent auditing can best be described as
A]
A branch of accounting.
B]
A discipline that provides assurance regarding the results of accounting and other functional operations and data.
C]
A professional activity that measures and communicates financial and business data.
D]
A regulatory function that prevents the issuance of improper financial information.
2
Information asymmetry
A]
Refers to an imbalance of information among stockholders in a company.
B]
Refers to an imbalance of information between the auditor and the management of the company.
C]
Refers to an imbalance of information between stockholders and the management of the company.
D]
Refers to an imbalance of information between the auditor and the stockholders of the company.
3
Which of the following best describes the primary reason an independent auditor reports on financial statements?
A]
To give stockholders some assurance that any fraudulent activities will be detected.
B]
To identify a poorly designed internal control structure that may produce unreliable financial statements.
C]
To provide expertise to management, which may not be totally knowledgeable of prevailing GAAP.
D]
To add credibility, where appropriate, since management may not be perceived as objective with respect to its own financial statements.
4
Financial statement users' demand for assurance is similar to that of a potential home buyer who hires a home inspector in that
A]
The buyer [or user] pays directly for this assurance in both situations.
B]
There are often information asymmetry and conflicts of interest.
C]
The cost of obtaining information is not relevant.
D]
Independence is not relevant in either situation.
5
Assurance services differ from auditing services in that
A]
Assurance services are more narrow in scope than audit services.
B]
Assurance services may include a report about the relevance and timeliness, not just the reliability, of the information.
C]
Assurance services are limited to economic events or actions, and audit services are not similarly limited.
D]
Audit services do not improve the quality of information as do assurance services.
6
Which of the following best describes the relationship between attestation services and audit services?
A]
Attestation is a subset of auditing that improves the quality of information for decision makers.
B]
Auditing is a subset of attestation and focuses on providing companies with advisory services and decision support.
C]
Auditing is a subset of attestation that involves the issuance of an opinion regarding the fairness of financial statements.
D]
Attestation is a subset of auditing that provides more assurance than does an audit engagement.
7
The fact that errors and/or omissions in certain relatively insignificant account balances would not affect an auditor's decision when reporting on the financial statements as a whole relates most closely to which major audit concept?
A]
Materiality.
B]
Audit risk.
C]
Management assertions.
D]
Reasonable assurance.
8
Audit evidence
A]
May only be gathered from parties external to the auditee to be reliable.
B]
May only be gathered from the auditee to be reliable since they are the most knowledgeable source of information.
C]
May only be gathered from computerized sources to avoid human error.
D]
Can be gathered from many sources and is not limited to the underlying accounting data.
9
Audit risk
A]
Can be completely eliminated through appropriate sampling of transactions.
B]
Is the risk that a "clean" opinion will be issued when, in reality, the financial statements are materially misstated.
C]
Is what creates the demand for an audit.
D]
Is the risk that a company may hire an incompetent auditor.
10
The examination of all of an entity's transactions would make an audit very costly. Thus, auditors rely heavily on sampling as a way to obtain evidence. Which of the following would result in a smaller sample?
A]
A decrease in the materiality level.
B]
A decrease in the desired level of assurance.
C]
An assessment that the account being audited is high risk.
D]
An increase in the desired level of assurance.
11
Which of the following audit phases would generally be conducted before all of the others listed below?
A]
Auditing business processes and related accounts.
B]
Evaluation of audit evidence.
C]
Gaining an understanding of the auditee's industry.
D]
Consideration of internal control systems.
12
An auditor's evaluation of the reasonableness of a company's loan loss reserve would normally be made during which phase of the audit?
A]
Gaining an understanding of the auditee's industry.
B]
Client acceptance.
C]
Consideration of internal control systems.
D]
Auditing business processes and related accounts.
13
Gaining an understanding of the auditee and its environment includes all of the following areas except
A]
Regulatory issues unique to the industry.
B]
The entity's application of accounting policies.
C]
The audit fee and timeline for completion of the work.
D]
The entity's business risks.
14
The most favorable type of audit opinion for an entity to receive is
A]
Qualified.
B]
Unqualified.
C]
Full assurance.
D]
Exceptional.
15
The study and practice of auditing is unlike other areas in accounting because it
A]
Requires the memorization of formulas and patterns.
B]
Requires the knowledge of GAAP.
C]
Requires common sense and some creativity.
D]
Is required by law for all companies in the United States.
Which of the following best describes why an independent auditor reports?
Which of the following best describes the reason why an independent auditor reports on financial statements? An independent auditor has the responsibility to design the audit to provide reasonable assurance of detecting errors and fraud that might have a material effect on the financial standards.
What is the purpose of the independent auditors report?
An independent Auditor's Report is an official opinion issued by an external or internal auditor as to the quality and accuracy of the financial statements prepared by a company. The report is a primary source of communication between the auditor and users of financial statements.
What does an independent auditor do during a financial report audit?
During the independent audit, the auditor will review the organization's financial statements to determine whether they adhere to “generally accepted accounting principles” [commonly referred to as “GAAP”].
Which of the following best describes why an independent auditor is normally asked to express an opinion on a financial report?
Which of the following best describes why an independent auditor is asked to express an opinion on the fair presentation of financial statements? The opinion of an independent party is needed because a company may not be objective with respect to its own financial statements.