Auditing An International Approach 8th Edition Smieliauska
Test Bank
Chapter 01
Introduction to Auditing
Multiple Choice Questions
1. Which of the following best describes the main reason that independent auditors report on a
company's financial statements?
A. Management fraud may exist within the company and it is likely that the independent
auditors will detect it.
B. Users of financial statements need confidence in the numbers they base their decisions on.
C. Misstated account balances may be corrected as the result of the independent audit work.
D. The accounting system from which the financial statements are derived may have a poorly
designed system of internal control.
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Learning Objective: 01-01 Explain the importance of auditing.
Topic: 01-02 Introduction: The Concept of Auditing
Topic: 01-04 A Simple Illustration of the Importance of Auditing
2. Reducing information risk means the same as .
A. serving the public interest
B. monitoring economic activities
C. improving the credibility of information
D. ensuring generally accepted accounting principles are used to measure profit
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 01-01 Explain the importance of auditing.
Topic: 01-02 Introduction: The Concept of Auditing
Topic: 01-04 A Simple Illustration of the Importance of Auditing
1-1
,Chapter 01 - Introduction to Auditing
3. In an audit engagement, the three-party accountability relationship involves all but which of
entities?
A. society
B. the users
C. the auditor
D. the accountable party
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 01-01 Explain the importance of auditing.
Topic: 01-02 Introduction: The Concept of Auditing
4. The idea of recognizing auditing as playing a bigger part of social control is known as
.
A. Professional responsibility
B. An accountability relationship
C. The effective auditor concept
D. The audit society concept
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 01-01 Explain the importance of auditing.
Topic: 01-02 Introduction: The Concept of Auditing
5. The agency problem can be mitigated by .
A. greater transparency
B. a higher degree of independence
C. design of contracts
D. internal auditing
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Learning Objective: 01-01 Explain the importance of auditing.
Topic: 01-05 Agency Theory and Accountability
1-2
,Chapter 01 - Introduction to Auditing
6. The underlying conditions that create demand by users for reliable financial information
include the fact that .
A. more reliable information will allow investors to calculate the rate of return on their
investment
B. users are separated from accounting records by distance and time
C. governments rely on such information to create tax policies
D. there is a need for the expression of an opinion as to the fairness of financial statements
7. The auditee is the person or company .
A. who will use the audited information
B. who performs an audit
C. who pays the audit fee
D. whose information is being audited
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Easy
Learning Objective: 01-02 Distinguish auditing from accounting.
Topic: 01-08 More on Auditing
1-3
, Chapter 01 - Introduction to Auditing
8. Professional judgment is a widely used concept in accounting and auditing. How is it
defined in the audit standards?
A. There is no definition of professional judgment in the auditing standards.
B. Professional judgment includes consideration of key principles and concepts of disciplines
underlying the professional standards, such as economics, psychology, law, finance, statistics
and philosophy.
C. Professional judgment means reaching a complex decision by incorporating auditing
standards, accounting standards, and rules of professional ethics in a coherent manner.
D. Professional judgment involves specialized concepts and language integrating several
disciplines in order to provide appropriate justification for audit decisions.
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 01-02 Distinguish auditing from accounting.
Topic: 01-08 More on Auditing
9. What is the primary role and responsibility of independent external auditors?
A. to prepare a company's annual financial statements and notes.
B. to perform an audit and provide an opinion on the financial statements of a company.
C. to provide business consulting advice to audit clients.
D. to obtain an understanding of a client's internal control system and prepare a report for
management about control weaknesses.
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Learning Objective: 01-02 Distinguish auditing from accounting.
Topic: 01-12 Audit Objective and the Auditor's Report
1-4
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