TEST BANK
Auditing & Assurance Services: A Systematic
Approach, 12th Edition Chapters 1 - 21
,Chapter 1: An Introduction to Assurance and Financial Statement Auditing
Chapter 2: The Financial Statement Auditing Environment
Chapter 3: Audit Planning, Types of Audit Tests, and Materiality
Chapter 4: Risk Assessment
Chapter 5: Evidence and Documentation
Chapter 6: Internal Control in a Financial Statement Audit
Chapter 7: Auditing Internal Control over Financial Reporting
Chapter 8: Audit Sampling: An Overview and Application to Tests of Controls
Chapter 9: Audit Sampling: An Application to Substantive Tests of Account Balances
Chapter 10: Auditing the Revenue Process
Chapter 11: Auditing the Purchasing Process
Chapter 12: Auditing the Human Resource Management Process
Chapter 13: Auditing the Inventory Management Process
Chapter 14: Auditing the Financing/Investing Process: Prepaid Expenses, Intangible Assets, and
Property, Plant, and Equipment
Chapter 15: Auditing the Financing/Investing Process: Long-Term Liabilities, Stockholders’
Equity, and Income Statement Accounts
Chapter 16: Auditing the Financing/Investing Process: Cash and Investments
Chapter 17: Completing the Audit Engagement
Chapter 18: Reports on Audited Financial Statements
Chapter 19: Professional Conduct, Independence, and Quality Management
Chapter 20: Legal Liability
Chapter 21: Assurance, Attestation, and Internal Auditing Services
,Auditing & Assurance Services: A Systematic Approach, 12e (Messier)
Chapter 1 An Introduction to Assurance and Financial Statement Auditing
1) Auditing focuses on rules, techniques, and computations required to prepare and
analyze financial information.
ANSWER: FALSE
Difficulty: 1 Easy
Topic: The Importance for Studying Auditing
Learning Objective: 01-01 Understand why studying auditing can be valuable to you whether
or not you plan to become an auditor, and why it is different from studying accounting.
Bloom's: Remember
AACSB: Communication
AICPA: BB Legal; FN Decision Making
2) Decision makers demand reliable information that is provided by accountants.
ANSWER: TRUE
Difficulty: 1 Easy
Topic: The Demand for Auditing and Assurance
Learning Objective: 01-02 Understand the demand for auditing and be able to explain the
desired characteristics of auditors and audit services through an analogy to a house inspector
and a house inspection service.
Bloom's: Understand
AACSB: Communication
AICPA: FN Decision Making; BB Industry
3) Information asymmetry seldom occurs.
ANSWER: FALSE
Difficulty: 2 Medium
Topic: The Demand for Auditing and Assurance
Learning Objective: 01-02 Understand the demand for auditing and be able to explain the
desired characteristics of auditors and audit services through an analogy to a house inspector
and a house inspection service.
Bloom's: Apply
AACSB: Communication
AICPA: BB Industry; FN Reporting
,4) Conflicts of interest often occur between absentee owners and managers.
ANSWER: TRUE
Difficulty: 2 Medium
Topic: The Demand for Auditing and Assurance
Learning Objective: 01-02 Understand the demand for auditing and be able to explain the
desired characteristics of auditors and audit services through an analogy to a house inspector
and a house inspection service.
Bloom's: Apply
AACSB: Communication
AICPA: BB Industry; FN Reporting
5) Auditing services and attestation services are the same.
ANSWER: FALSE
Difficulty: 1 Easy
Topic: Auditing, Attest, and Assurance Services Defined
Learning Objective: 01-03 Understand the relationships among auditing, attestation, and
assurance services.
Bloom's: Understand
AACSB: Communication
AICPA: BB Industry; FN Reporting
6) Auditing is a type of attest service.
ANSWER: TRUE
Difficulty: 1 Easy
Topic: Auditing, Attest, and Assurance Services Defined
Learning Objective: 01-03 Understand the relationships among auditing, attestation, and
assurance services.; 01-04 Know the basic definition of a financial statement audit.
Bloom's: Understand
AACSB: Communication
AICPA: BB Industry; FN Reporting
7) Testing all transactions that occurred during the period is cost prohibitive.
ANSWER: TRUE
Difficulty: 2 Medium
Topic: The Audit Process
Learning Objective: 01-06 Be able to explain why on most audit engagements an auditor
tests only a sample of transactions that occurred.
Bloom's: Apply
AACSB: Communication
AICPA: FN Decision Making; BB Critical Thinking
,8) Why do auditors generally use a sampling approach to evidence gathering?
A) Auditors are experts and do not need to look at much to know whether the
financial statements are correct or not.
B) Auditors must balance the cost of the audit with the need for precision.
C) Auditors must limit their exposure to their auditee to maintain independence.
D) The auditor's relationship with the auditee is generally adversarial, so the auditor will
not have access to all of the financial information of the company.
ANSWER: B
Difficulty: 1 Easy
Topic: The Audit Process
Learning Objective: 01-06 Be able to explain why on most audit engagements an auditor
tests only a sample of transactions that occurred.
Bloom's: Understand
AACSB: Communication
AICPA: FN Decision Making; BB Industry
9) Which of the following statements best describes a relationship between sample size and
other elements of auditing?
A) If materiality increases, so will the sample size.
B) If the desired level of assurance increases, sample sizes can be smaller.
C) If materiality decreases, sample size will need to increase.
D) There is no relationship between sample size and materiality or the desired level of
assurance.
ANSWER: C
Difficulty: 2 Medium
Topic: The Audit Process
Learning Objective: 01-06 Be able to explain why on most audit engagements an auditor
tests only a sample of transactions that occurred.
Bloom's: Apply
AACSB: Analytical Thinking
AICPA: BB Critical Thinking; FN Risk Analysis
,10) Which of the following statements about the study of auditing is NOT true?
A) The study of auditing can be valuable to future accountants and business decision
makers whether or not they plan to become auditors.
B) The study of auditing focuses on learning the analytical and logical skills necessary
to evaluate the relevance and reliability of information.
C) The study of auditing focuses on learning the rules, techniques, and computations
required to analyze financial statements.
D) The study of auditing begins with the understanding of a coherent logical framework
and techniques useful for gathering and analyzing evidence about others' assertions.
ANSWER: C
Difficulty: 2 Medium
Topic: The Importance for Studying Auditing
Learning Objective: 01-01 Understand why studying auditing can be valuable to you whether
or not you plan to become an auditor, and why it is different from studying accounting.
Bloom's: Analyze AACSB:
Communication
AICPA: FN Decision Making; BB Industry
11) The basic definition of auditing states it is a process to:
A) detect fraud.
B) examine individual transactions so that the auditor may certify as to their validity.
C) objectively obtain and evaluate evidence regarding assertions.
D) assure the consistent application of correct accounting procedures.
ANSWER: C
Difficulty: 1 Easy
Topic: Auditing, Attest, and Assurance Services Defined
Learning Objective: 01-03 Understand the relationships among auditing, attestation, and
assurance services.; 01-04 Know the basic definition of a financial statement audit.
Bloom's: Remember
AACSB: Communication
AICPA: FN Reporting; BB Critical Thinking
,12) Assurance services may improve all of the following except:
A) relevance.
B) credibility.
C) periodicity.
D) reliability.
ANSWER: C
Difficulty: 1 Easy
Topic: Auditing, Attest, and Assurance Services Defined
Learning Objective: 01-03 Understand the relationships among auditing, attestation, and
assurance services.
Bloom's: Remember
AACSB: Communication
AICPA: BB Industry; FN Reporting
13) Evidence is reliable if it:
A) signals the true state of a management assertion.
B) applies to the period being audited.
C) relates to the audit assertion being tested.
D) is sufficient to justify a conclusion.
ANSWER: A
Difficulty: 1 Easy
Topic: Fundamental Concepts in Conducting a Financial Statement Audit
Learning Objective: 01-05 Understand three fundamental concepts that underlie financial
statement auditing.
Bloom's: Understand AACSB:
Analytical Thinking
AICPA: BB Critical Thinking; FN Measurement
14) Which of the following best describes the concept of audit risk?
A) The risk of the auditor being sued because of association with an auditee.
B) The risk that the auditor will provide a "clean" opinion on financial statements that
are, in fact, materially misstated.
C) The overall risk that a material misstatement exists in the financial statements.
D) The risk that auditors use audit procedures that are inappropriate.
ANSWER: B
Difficulty: 2 Medium
Topic: Fundamental Concepts in Conducting a Financial Statement Audit
Learning Objective: 01-05 Understand three fundamental concepts that underlie financial
statement auditing.
Bloom's: Understand AACSB:
Analytical Thinking
,AICPA: BB Critical Thinking; FN Risk Analysis
, 15) An auditor who accepts an audit engagement and does not possess expertise with
respect to the business entity's industry, should:
A) engage financial experts familiar with the nature of the business entity.
B) obtain a knowledge of matters that relate to the nature of the entity's business.
C) refer a substantial portion of the audit to another CPA, who will act as the principal auditor.
D) first inform management that an unqualified opinion cannot be issued.
ANSWER: B
Difficulty: 2 Medium
Topic: The Audit Process; Auditing Demands Logic, Reasoning, Resourcefulness
Learning Objective: 01-07 Be able to describe the basic financial statement auditing process
and the phases in which an audit is carried out.; 01-10 Understand why auditing demands
logic, reasoning, and resourcefulness.
Bloom's: Apply
AACSB: Ethics
AICPA: FN Decision Making; BB Industry
16) For publicly-held companies, which of the following is integrated into the audit of
financial statements?
A) Budgetary information audit.
B) The audit of internal controls.
C) Audit of management forecasts.
D) Audit of interim financial statements.
ANSWER: B
Difficulty: 1 Easy
Topic: The Audit Process
Learning Objective: 01-07 Be able to describe the basic financial statement auditing process
and the phases in which an audit is carried out.
Bloom's: Remember
AACSB: Communication
AICPA: BB Legal; FN Reporting
