Test Bank for The Audit Process, 8e 8th Edition by Iain Gray, Stuart Manson, Louise Crawford, Lynn Bradley, Lynn Currie. Complete chapters (Chap 1 to 21) test bank are included with answers.
1. Why are auditors needed?
2. An overview of the postulates and concepts of auditing
3. Auditor indep...
Indicate the answer choice that best completes the statement or answers the question.
1. One justification of audit is that it makes financial statements more reliable and,because it is more reliable, it is
more useful to decision makers. This is an example of:
a. The agency theory hypothesis
b. The information hypothesis
c. The true and fair view hypothesis
d. The insurance hypothesis
ANSWER: b
2. Under strict agency theory, external financial reports are regarded as reports to whom:
a. The owners of the business
b. The management of the business The government
c. The government
d. The regulatory authorities
ANSWER: a
3. Which of the following statements is NOT correct when considering ‘true and fair’ from an auditing perspective?
a. True and fair financial statements should not mislead the reader.
b. True and fair financial statements should be able to be relied upon to make decisions.
c. The income statement, balance sheet and cash flow statement are not on their own sufficient to provide a
true and fair view.
d. To be true and fair financial statements must be completely accurate.
ANSWER: d
4. Which sort of attitude towards management is generally best for an auditor to adopt?
a. Professional scepticism
b. Suspicion
c. Collegiality
d. Friendship
ANSWER: a
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Chapter 01 8e
5. Which of the following ISAs states that auditors should adopt an attitude of professional scepticism in their
work?
a. ISA 200
b. ISA 210
c. ISA 250
d. ISA 300
ANSWER: a
6. It is important to recognize that auditors do not give guarantees that the financial information is ___________:
a. True and fair
b. Containing errors
c. Containing frauds
d. Containing material misstatements
ANSWER: a
7. Which of the following people described would be in the best position to audit a set of financial statements?
a. An accountant who prepared the financial statements because they understand the accounts best.
b. A senior manager in the organization whose accounts are being audited because they understand the
environment in which the organization operates.
c. An independent professional with accounting knowledge because they can remain unbiased when
reviewing the financial statements.
d. An owner of the organization who is not involved in its day-to-day operations because they are most
interested in ensuring the information is accurate.
ANSWER: c
8. Which of the following body is concerned with the quality of higher education in the UK?
a. National Audit Office
b. Quality Assurance Agency
c. Audit and Assurance Council
d. CIPFA Audit Panel
ANSWER: b
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Chapter 01 8e
9. Which of the following is NOT an assumption of agency theory?
a. Both owners and managers are trying to maximize their own wealth
b. The financial report provides a mechanism for owners to monitor managers
c. The appointment of auditors is considered a cost-effective monitoring mechanism
d. Managers do not benefit from thefinancial statements being audited.
ANSWER: d
10. It’s believed that auditors can provide a degree of insurance to people relying upon the information subjected
to audit. This is known as _______________ .
a. The agency theory hypothesis
b. The information hypothesis
c. The true and fair view hypothesis
d. The insurance hypothesis
ANSWER: d
11. Which of the following is NOT one of the stages of the audit process?
a. Interviews with directors of the business
b. Systems work and transactions testing
c. Preparation for final work
d. Final work
ANSWER: a
12. Ideally an auditor wants what level of assurance before giving their opinion on a set of financial statements?
a. Reasonable
b. Absolute
c. Limited
d. Material
ANSWER: a
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Chapter 01 8e
13. Which of the following term will complete the definition for financial statements as defined by the International
Federation of Accountants (2020): financial statements refer to a complete set of financial statements as
determined by the requirements of the applicable _______________ ?
a. Financial reporting framework
b. Assurance reporting framework
c. Auditing reporting framework
d. Business risk framework
ANSWER: a
14. Which of the following Big Four accounting firms audited the Northern Rock bank, UK, in 2008 when the
bank was nationalized by the British government, due to financial problems caused by the subprime mortgage
crisis?
a. Deloitte
b. EY
c. KPMG
d. PwC
ANSWER: d
15. In large companies, the recommendation to appoint auditors is always, in the case of companies covered by
the UK Corporate Governance Code, the responsibility of which of the following?
a. The remuneration committee
b. The audit committee
c. The board of directors
d. The senior management
ANSWER: b
16. Which of the following best describes what an auditor is doing before providing an opinion on a set of financial
statements?
a. An auditor is taking the source documents and is recreating the financial statements to prove they are
accurate.
b. An auditor is trying to collect sufficient appropriate evidence to prove the financial statements are true and
fair.
c. An auditor is assessing the liability they have to shareholders for losses suffered from inaccurate financial
statements.
d. An auditor is checking that the accountants preparing the financial statements have followed their advice
correctly on material matters.
ANSWER: b
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