Auditing Theory Chapter 1 exam questions and complete correct answers
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Course
Auditing Theory
Institution
Auditing Theory
When the Auditor has no reservations about management's financial statements or internal controls, the audit opinion is said to be unqualified (True or False) - correct answer True
Independence is referred to as the cornerstone of the auditing profession (True or False) - correct answer True
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Auditing Theory Chapter 1
When the Auditor has no reservations about management's financial statements or internal controls, the
audit opinion is said to be unqualified (True or False) - correct answer True
Independence is referred to as the cornerstone of the auditing profession (True or False) - correct answer
True
The sole responsibility of management with regard to financial reporting involves preparing and presenting financial statements in accordance with the applicable financial reporting framework (True or False) - correct answer False
The internal audit function is designed primarily to assist the external auditor in providing assurance to third-party users of the financial statements (True or False) - correct answer False
The Big 4 audit firms are the only types of firms that conduct financial statement audits (True or False) - correct answer False
With regard to working in a team environment, larger audit firms typically have teams with more continuity and overlap across engagements, whereas small audit firms typically have multiple teams that
typically disband after each engagement (True or False) - correct answer False
Congress passed the Sarbanes-Oxley Act of 2002 in response to a variety of major economic shocks during the early 2000s (True or False) - correct answer True
The AICPA sets auditing standards for auditors of non-public companies in the United States (True or False) - correct answer True
Audit quality is achieved when the audit is performed in accordance with GAAS and when it provides reasonable assurance that the financial statements have been presented in accordance with GAAP and are not materially misstated due to errors or fraud (True or False) - correct answer True One of the key drivers of audit quality is the gross margin achieved by the audit firm and the ability of the engagement partner to maintain those margins over the duration of the audit engagement (True or False) - correct answer False
The three primary types of review programs include: (1) external inspections/peer reviews, (2) engagement quality reviews, (3) interoffice reviews (True or False) - correct answer True
The engagement letter states the scope of the work to be done on the audit so that there should be no doubt in the mind of the client, external auditor, or the court system as to the expectations agreed to by the external auditor and the client (True or False) - correct answer True
Exiting clients for which the audit firm provided services in the preceding period are evaluated by the audit firm and by the individual engagement partner at the completion of the audit to determine whether the audit firm should continue to provide services again in the next period; the process by which this evaluation occurs is called the client continuance decision - correct answer True
Audit firms may discontinue serving a client because the client does not fit the profile or growth strategy of the audit firm - correct answer True
Which of the following factors does not create a demand for external audit services?
a. Potential bias by management in providing information
b. Requirements of the Center for Audit Quality (CAQ)
c. Complexity of the accounting processing systems
d. Remoteness between a user and the organization - correct answer b. Requirements of the Center for Audit Quality (CAQ)
Which of the following expectations can users of the audit report reasonably expect with regard to the audited financial statements?
a. The financial statements include all financial disclosures desired by users
b. The financials statements are presented fairly in accordance with GAAP
c. The financial statements are free from all errors
d. All of the above are reasonable expectations
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