TEST BANK
Auditing & Assurance Services: A
Systematic Approach
,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
,Test Bank For Auditing & Assurance Services: A Systematic Approach 12th
Edition By William Messier, Steven Glover
Chapter 01 12e Answers Included
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,1) Why Do Auditors Often 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 And
For Some Types Of Evidence, Computer Data Analytic Approaches Can’t Be Used.
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.
2) 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.
3) 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 For Making Investment
Recommendations.
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.
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,4) The Basic Definition Of Auditing Essentially Indicates That, Overall, Auditing 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 Made By Another Party.
D) Assure The Consistent Application Of Correct Accounting Procedures.
5) Assurance Services May Improve All Of The Following Except:
A) Relevance.
B) Credibility.
C) Periodicity.
D) Reliability.
6) 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.
7) 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 An Inappropriate 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.
8) An Auditor Who Accepts An Audit Engagement And Does Not Possess Expertise With
Respect To The Business Entity’s Industry At That Point, Should:
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, 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 And The Industry In Which It Operates.
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.
9) For Publicly-Held Companies, Which Of The Following Is Integrated With 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
10) During The First Phase Of An Audit, A CPA Most Likely Would:
A) Identify Specific Internal Control Activities That Are Likely To Prevent Fraud.
B) Evaluate The Reasonableness Of The Company’s Accounting Estimates.
C) Evaluate The Integrity Of Management.
D) Inquire Of The Company's Attorney As To Whether Any Unrecorded Claims Are
Probable Or Asserted.
11) In The Context Of Agency Theory, Information Asymmetry Refers To The Idea That:
A) Information Can Vary In Its Reliability.
B) Information Can Vary In Its Relevance.
C) Management Has More Information About The Entity’s True Financial
Results And Position Than Do The Absentee Owners (I.E. Stockholders).
D) Management Likely Will Not Act In The Best Interests Of The Absentee Owners.
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,12) Which Of The Following Best Describes Why An Independent Auditor Is Engaged To
Express An Opinion On The Fair Presentation Of Financial Statements?
A) It Is Difficult To Prepare Financial Statements That Fairly Present A Company’s
Financial Position And Changes In Cash Flows Without The Expertise Of An Independent
Auditor.
B) It Is Management’s Responsibility To Seek Available Independent Aid In The
Appraisal Of The Financial Information Shown In Its Financial Statements.
C) The Opinion Of An Independent Party Is Needed Because A Company Is Not Likely
To Be Considered Objective With Respect To Its Own Financial Statements.
D) It Is A Customary Courtesy That All Stockholders Of A Company Receive An
Independent Report On Management’s Stewardship In Managing The Affairs Of The Business.
13) Which Of The Following Best Describes The Fundamental, Underlying Reason For
Why There Is Demand For An Independent Auditor To Report On Financial Statements?
A) A Management Fraud May Exist And It Is More Likely To Be Detected By Auditors
If They Are Independent.
B) Different Interests May Exist Between The Company Preparing The Statements
And The Parties Using The Statements.
C) A Misstatement Of Account Balances May Exist And It Is The Independent
Auditor’s Responsibility To Ensure That Financial Statements Are Not Misstated.
D) A Poorly Designed Internal Control System May Be In Place.
14) Which Of The Following Best Describes Why Publicly-Traded Companies Follow The
Practice Of Having The External Auditor Appointedby The Audit Committee And Ratified By
The Stockholders?
A) To Promote An Adversarial Relationship Between The Auditor And The
Corporation’s Management
B) To Comply With Requirements Set Forth By The Sarbanes-Oxley Act Of 2002
And To Enhance Auditor Independence From The Management Of The Corporation
C) To Encourage A Policy Of Rotation Of The Independent Auditors
D) To Give Management More Leverage Over The Auditor’s Decisions
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, 15) Auditing Can Be Defined As A “Systematic Process Of Objectively Obtaining And
Evaluating Evidence Regarding Assertions...” What Is Meant By “Systematic Process” In This
Definition?
A) All Audits Involve Obtaining The Same Evidence.
B) All Audits Involve Evaluating Evidence In The Same Manner.
C) There Should Be A Well-Planned Approach For Obtaining And Evaluating
Evidence That Is Relevant And Reliable For Each Particular Audit Engagement.
D) All Assertions Are Equally Important For All Audits.
16) Which Of The Following Would Best Be Described As An Assurance Service?
A) Preparing A Report Representing A Client’s Position During An IRS Audit
B) Working With A Company To Develop A More Efficient Method Of Processing
Financial Transactions
C) Offering An Opinion Concerning The Validity Of Statements Made On An Entity’s
Website Relating To Its Online Privacy Policies
D) Assisting A Company In Identifying Potential Sources Of Capital For
Potential Acquisitions
17) Which Of The Following Statements Is Not True With Respect To Assurance, Attest,
And Audit Services?
A) These Services Are Applied Only To Financial Statements And Financial
Statement Accounts.
B) These Services All Involve Obtaining And Evaluating Evidence.
C) These Services All Involve Determining The Correspondence Of Some Information
To A Set Of Criteria.
D) These Services All Involve Issuing A Report.
18) Auditors Are Most Likely To Use The Most Rigorous Audit Procedures To Examine:
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