TEST BANK
Test Bank for Auditing & Assurance Services, 9th Edition
by Timothy Louwers
1
Copyright © 2018 McGraw-Hill
,Auditing & Assurance Services, 9th E
(Louwers) Chapter 1 Auditing and Assurance
Services
1) The audit objective that all transactions and accounts that should be presented in the financial
statements are in fact included is related to which of the PCAOB assertions?
A) Existence.
B) Rights and obligations.
C) Completeness.
D) Valuation.
Answer: C
Difficulty: 1 Easy
Topic: Management's Financial Statement Assertions
Learning Objective: 01-03 Describe and define the assertions that management makes about the
recognition, measurement, presentation, and disclosure of the financial statements and explain
why auditors use them as the focal point of the audit.
Blooms: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
2) Cutoff tests designed to detect purchases made before the end of the year that have been
recorded in the subsequent year provide assurance about management's assertion of:
A) presentation and disclosure.
B) completeness.
C) rights and obligations.
D) existence.
Answer: B
Difficulty: 2 Medium
Topic: Management's Financial Statement Assertions
Learning Objective: 01-03 Describe and define the assertions that management makes about the
recognition, measurement, presentation, and disclosure of the financial statements and explain
why auditors use them as the focal point of the audit.
Blooms: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
2
Copyright © 2018 McGraw-Hill
,3) During an audit of an entity's stockholders' equity accounts, the auditor determines whether
there are restrictions on retained earnings resulting from loans, agreements, or state law. This
audit procedure most likely is intended to verify management's assertion of:
A) existence or occurrence.
B) completeness.
C) valuation or allocation.
D) presentation and disclosure.
Answer: D
Difficulty: 2 Medium
Topic: Management's Financial Statement Assertions
Learning Objective: 01-03 Describe and define the assertions that management makes about the
recognition, measurement, presentation, and disclosure of the financial statements and explain
why auditors use them as the focal point of the audit.
Blooms: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
4) The confirmation of an account payable balance selected from the general ledger provides
primary evidence regarding which management assertion?
A) Completeness.
B) Valuation.
C) Allocation.
D) Existence.
Answer: D
Difficulty: 2 Medium
Topic: Management's Financial Statement Assertions
Learning Objective: 01-03 Describe and define the assertions that management makes about the
recognition, measurement, presentation, and disclosure of the financial statements and explain
why auditors use them as the focal point of the audit.
Blooms: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
5) What type of evidence would provide the highest level of assurance in an attestation
engagement?
A) Evidence secured solely from within the entity.
B) Evidence obtained from independent sources.
C) Evidence obtained indirectly.
D) Evidence obtained from multiple internal inquiries.
Answer: B
Difficulty: 3 Hard
Topic: Auditing, Attestation, and Assurance Services
Learning Objective: 01-02 Define and contrast financial statement auditing, attestation, and
assurance services.
Blooms: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
3
Copyright © 2018 McGraw-Hill
,6) Which of the following management assertions is an auditor most likely testing if the audit
objective states that all inventory on hand is reflected in the ending inventory balance?
A) The entity has rights to the inventory.
B) Inventory is properly valued.
C) Inventory is properly presented in the financial statements.
D) Inventory is complete.
Answer: D
Difficulty: 3 Hard
Topic: Management's Financial Statement Assertions
Learning Objective: 01-03 Describe and define the assertions that management makes about the
recognition, measurement, presentation, and disclosure of the financial statements and explain
why auditors use them as the focal point of the audit.
Blooms: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
7) An auditor traces the serial numbers on equipment to a nonissuer's sub-ledger. Which of the
following management assertions is supported by this test?
A) Valuation and allocation.
B) Completeness.
C) Rights and obligations.
D) Presentation and disclosure.
Answer: B
Difficulty: 3 Hard
Topic: Management's Financial Statement Assertions
Learning Objective: 01-03 Describe and define the assertions that management makes about the
recognition, measurement, presentation, and disclosure of the financial statements and explain
why auditors use them as the focal point of the audit.
Blooms: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
4
Copyright © 2018 McGraw-Hill
,8) An auditor has substantial doubt about the entity's ability to continue as a going concern for a
reasonable period of time because of negative cash flows and working capital deficiencies.
Under these circumstances, the auditor would be most concerned about the:
A) control environment factors that affect the organizational structure.
B) correlation of detection risk and inherent risk.
C) effectiveness of the entity's internal control activities.
D) possible effects on the entity's financial statements.
Answer: D
Difficulty: 3 Hard
Topic: Management's Financial Statement Assertions
Learning Objective: 01-03 Describe and define the assertions that management makes about the
recognition, measurement, presentation, and disclosure of the financial statements and explain
why auditors use them as the focal point of the audit.
Blooms: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
9) Which of the following types of audit evidence provides the least assurance of reliability?
A) Receivable confirmations received from the client's customers.
B) Prenumbered receiving reports completed by the client's employees.
C) Prior months' bank statements obtained from the client.
D) Municipal property tax bills prepared in the client's name.
Answer: B
Difficulty: 3 Hard
Topic: Management's Financial Statement Assertions
Learning Objective: 01-03 Describe and define the assertions that management makes about the
recognition, measurement, presentation, and disclosure of the financial statements and explain
why auditors use them as the focal point of the audit.
Blooms: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
5
Copyright © 2018 McGraw-Hill
,10) Which of the following is a management assertion regarding account balances at the period
end?
A) Transactions and events that have been recorded have occurred and pertain to the entity.
B) Transactions and events have been recorded in the proper accounts.
C) The entity holds or controls the rights to assets, and liabilities are obligations of the entity.
D) Amounts and other data related to the transactions and events have been recorded
appropriately.
Answer: C
Difficulty: 3 Hard
Topic: Management's Financial Statement Assertions
Learning Objective: 01-03 Describe and define the assertions that management makes about the
recognition, measurement, presentation, and disclosure of the financial statements and explain
why auditors use them as the focal point of the audit.
Blooms: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
11) A practitioner is engaged to express an opinion on management's assertion that the square
footage of a warehouse offered for sale is 150,000 square feet. The practitioner should refer to
which of the following sources for professional guidance?
A) Statement of Auditing Standards.
B) Statements on Standards for Attestation Engagements.
C) Statements on Standards for Accounting and Review Services.
D) Statements on Standards for Consulting Services.
Answer: B
Difficulty: 3 Hard
Topic: Auditing, Attestation, and Assurance Services
Learning Objective: 01-02 Define and contrast financial statement auditing, attestation, and
assurance services.
Blooms: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
6
Copyright © 2018 McGraw-Hill
,12) In auditing the long-term debt account, an auditor's procedures most likely would focus
primarily on management's assertion of:
A) existence.
B) completeness.
C) allocation.
D) rights and obligations.
Answer: B
Difficulty: 2 Medium
Topic: Management's Financial Statement Assertions
Learning Objective: 01-03 Describe and define the assertions that management makes about the
recognition, measurement, presentation, and disclosure of the financial statements and explain
why auditors use them as the focal point of the audit.
Blooms: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
13) An auditor selected items for test counts from the client's warehouse during the physical
inventory observation. The auditor then traced these test counts into the detailed inventory listing
that ultimately agreed to the financial statements. This procedure most likely provided evidence
concerning management's assertion of:
A) completeness.
B) valuation.
C) presentation and disclosure.
D) existence.
E) rights and obligations.
Answer: A
Difficulty: 2 Medium
Topic: Management's Financial Statement Assertions
Learning Objective: 01-03 Describe and define the assertions that management makes about the
recognition, measurement, presentation, and disclosure of the financial statements and explain
why auditors use them as the focal point of the audit.
Blooms: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
7
Copyright © 2018 McGraw-Hill
,14) An auditor selected items from the client's detailed inventory listing (that agreed to the
financial statements). During the physical inventory observation, the auditor then found each
item selected and counted the number of units on hand. Assuming that the amount on hand was
the same as the amount in the client's detailed inventory listing, this procedure most likely would
provide evidence concerning management's assertion of:
A) completeness.
B) valuation.
C) presentation and disclosure.
D) existence.
E) rights and obligations.
Answer: D
Difficulty: 2 Medium
Topic: Management's Financial Statement Assertions
Learning Objective: 01-03 Describe and define the assertions that management makes about the
recognition, measurement, presentation, and disclosure of the financial statements and explain
why auditors use them as the focal point of the audit.
Blooms: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
15) According to PCAOB Auditing Standard No. 2201 (AS 2201), the auditor should identify
significant accounts and disclosures and their relevant assertions. Which of the following
financial statement assertions is not explicitly identified in AS 2201?
A) Completeness.
B) Valuation or allocation.
C) Accuracy.
D) Existence or occurrence.
E) All of these are assertions identified in AS 5.
Answer: C
Difficulty: 2 Medium
Topic: Management's Financial Statement Assertions
Learning Objective: 01-03 Describe and define the assertions that management makes about the
recognition, measurement, presentation, and disclosure of the financial statements and explain
why auditors use them as the focal point of the audit.
Blooms: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
8
Copyright © 2018 McGraw-Hill
,16) When testing the completeness assertion for a liability account, an auditor ordinarily works
from the:
A) financial statements to the potentially unrecorded items.
B) potentially unrecorded items to the financial statements.
C) accounting records to the supporting evidence.
D) trial balance to the subsidiary ledger.
Answer: B
Difficulty: 2 Medium
Topic: Management's Financial Statement Assertions
Learning Objective: 01-03 Describe and define the assertions that management makes about the
recognition, measurement, presentation, and disclosure of the financial statements and explain
why auditors use them as the focal point of the audit.
Blooms: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
17) If an auditor is performing procedures related to the information that is contained in the
client's pension footnote, he/she is most likely to obtain evidence concerning management's
assertion about:
A) rights and obligations.
B) existence.
C) valuation.
D) presentation and disclosure.
Answer: D
Difficulty: 2 Medium
Topic: Management's Financial Statement Assertions
Learning Objective: 01-03 Describe and define the assertions that management makes about the
recognition, measurement, presentation, and disclosure of the financial statements and explain
why auditors use them as the focal point of the audit.
Blooms: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
18) Which of the following questions would be inappropriate for an auditor to ask a client when
exhibiting an appropriate level of professional skepticism while completing an audit procedure
related to the internal control system?
A) What can go wrong in this process?
B) Which of your employees is a fraudster?
C) What else is important to know about this process?
D) What happens when a key employee goes on vacation?
Answer: B
Difficulty: 1 Easy
Topic: Professional Skepticism
Learning Objective: 01-04 Define professional skepticism and explain its key characteristics.
Blooms: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
9
Copyright © 2018 McGraw-Hill
, 19) To be proficient as an auditor, a person must first be able to accomplish which of these tasks
in a decision-making process?
A) Identify audit evidence relevant to the verification of assertions management makes in its
unaudited financial statements and notes.
B) Formulate evidence-gathering procedures (audit plan) designed to obtain sufficient,
competent evidence about assertions management makes in financial statements and notes.
C) Recognize the financial assertions made in management's financial statements and footnotes.
D) Evaluate the evidence produced by the performance of procedures and decide whether
management's assertions conform to generally accepted accounting principles and reality.
Answer: C
Difficulty: 3 Hard
Topic: Management's Financial Statement Assertions
Learning Objective: 01-03 Describe and define the assertions that management makes about the
recognition, measurement, presentation, and disclosure of the financial statements and explain
why auditors use them as the focal point of the audit.
Blooms: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
20) Which of the following is an underlying condition that in part creates the demand by users
for reliable information?
A) Economic transactions that are numerous and complex.
B) Decisions that are time-sensitive.
C) Users separated from accounting records by distance and time.
D) Financial decisions that are important to investors and users.
E) All of these.
Answer: E
Difficulty: 2 Medium
Topic: User Demand for Reliable Information
Learning Objective: 01-01 Define information risk and explain how the financial statement
auditing process helps to reduce this risk, thereby reducing the cost of capital for a company.
Blooms: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
10
Copyright © 2018 McGraw-Hill
Test Bank for Auditing & Assurance Services, 9th Edition
by Timothy Louwers
1
Copyright © 2018 McGraw-Hill
,Auditing & Assurance Services, 9th E
(Louwers) Chapter 1 Auditing and Assurance
Services
1) The audit objective that all transactions and accounts that should be presented in the financial
statements are in fact included is related to which of the PCAOB assertions?
A) Existence.
B) Rights and obligations.
C) Completeness.
D) Valuation.
Answer: C
Difficulty: 1 Easy
Topic: Management's Financial Statement Assertions
Learning Objective: 01-03 Describe and define the assertions that management makes about the
recognition, measurement, presentation, and disclosure of the financial statements and explain
why auditors use them as the focal point of the audit.
Blooms: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
2) Cutoff tests designed to detect purchases made before the end of the year that have been
recorded in the subsequent year provide assurance about management's assertion of:
A) presentation and disclosure.
B) completeness.
C) rights and obligations.
D) existence.
Answer: B
Difficulty: 2 Medium
Topic: Management's Financial Statement Assertions
Learning Objective: 01-03 Describe and define the assertions that management makes about the
recognition, measurement, presentation, and disclosure of the financial statements and explain
why auditors use them as the focal point of the audit.
Blooms: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
2
Copyright © 2018 McGraw-Hill
,3) During an audit of an entity's stockholders' equity accounts, the auditor determines whether
there are restrictions on retained earnings resulting from loans, agreements, or state law. This
audit procedure most likely is intended to verify management's assertion of:
A) existence or occurrence.
B) completeness.
C) valuation or allocation.
D) presentation and disclosure.
Answer: D
Difficulty: 2 Medium
Topic: Management's Financial Statement Assertions
Learning Objective: 01-03 Describe and define the assertions that management makes about the
recognition, measurement, presentation, and disclosure of the financial statements and explain
why auditors use them as the focal point of the audit.
Blooms: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
4) The confirmation of an account payable balance selected from the general ledger provides
primary evidence regarding which management assertion?
A) Completeness.
B) Valuation.
C) Allocation.
D) Existence.
Answer: D
Difficulty: 2 Medium
Topic: Management's Financial Statement Assertions
Learning Objective: 01-03 Describe and define the assertions that management makes about the
recognition, measurement, presentation, and disclosure of the financial statements and explain
why auditors use them as the focal point of the audit.
Blooms: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
5) What type of evidence would provide the highest level of assurance in an attestation
engagement?
A) Evidence secured solely from within the entity.
B) Evidence obtained from independent sources.
C) Evidence obtained indirectly.
D) Evidence obtained from multiple internal inquiries.
Answer: B
Difficulty: 3 Hard
Topic: Auditing, Attestation, and Assurance Services
Learning Objective: 01-02 Define and contrast financial statement auditing, attestation, and
assurance services.
Blooms: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
3
Copyright © 2018 McGraw-Hill
,6) Which of the following management assertions is an auditor most likely testing if the audit
objective states that all inventory on hand is reflected in the ending inventory balance?
A) The entity has rights to the inventory.
B) Inventory is properly valued.
C) Inventory is properly presented in the financial statements.
D) Inventory is complete.
Answer: D
Difficulty: 3 Hard
Topic: Management's Financial Statement Assertions
Learning Objective: 01-03 Describe and define the assertions that management makes about the
recognition, measurement, presentation, and disclosure of the financial statements and explain
why auditors use them as the focal point of the audit.
Blooms: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
7) An auditor traces the serial numbers on equipment to a nonissuer's sub-ledger. Which of the
following management assertions is supported by this test?
A) Valuation and allocation.
B) Completeness.
C) Rights and obligations.
D) Presentation and disclosure.
Answer: B
Difficulty: 3 Hard
Topic: Management's Financial Statement Assertions
Learning Objective: 01-03 Describe and define the assertions that management makes about the
recognition, measurement, presentation, and disclosure of the financial statements and explain
why auditors use them as the focal point of the audit.
Blooms: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
4
Copyright © 2018 McGraw-Hill
,8) An auditor has substantial doubt about the entity's ability to continue as a going concern for a
reasonable period of time because of negative cash flows and working capital deficiencies.
Under these circumstances, the auditor would be most concerned about the:
A) control environment factors that affect the organizational structure.
B) correlation of detection risk and inherent risk.
C) effectiveness of the entity's internal control activities.
D) possible effects on the entity's financial statements.
Answer: D
Difficulty: 3 Hard
Topic: Management's Financial Statement Assertions
Learning Objective: 01-03 Describe and define the assertions that management makes about the
recognition, measurement, presentation, and disclosure of the financial statements and explain
why auditors use them as the focal point of the audit.
Blooms: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
9) Which of the following types of audit evidence provides the least assurance of reliability?
A) Receivable confirmations received from the client's customers.
B) Prenumbered receiving reports completed by the client's employees.
C) Prior months' bank statements obtained from the client.
D) Municipal property tax bills prepared in the client's name.
Answer: B
Difficulty: 3 Hard
Topic: Management's Financial Statement Assertions
Learning Objective: 01-03 Describe and define the assertions that management makes about the
recognition, measurement, presentation, and disclosure of the financial statements and explain
why auditors use them as the focal point of the audit.
Blooms: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
5
Copyright © 2018 McGraw-Hill
,10) Which of the following is a management assertion regarding account balances at the period
end?
A) Transactions and events that have been recorded have occurred and pertain to the entity.
B) Transactions and events have been recorded in the proper accounts.
C) The entity holds or controls the rights to assets, and liabilities are obligations of the entity.
D) Amounts and other data related to the transactions and events have been recorded
appropriately.
Answer: C
Difficulty: 3 Hard
Topic: Management's Financial Statement Assertions
Learning Objective: 01-03 Describe and define the assertions that management makes about the
recognition, measurement, presentation, and disclosure of the financial statements and explain
why auditors use them as the focal point of the audit.
Blooms: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
11) A practitioner is engaged to express an opinion on management's assertion that the square
footage of a warehouse offered for sale is 150,000 square feet. The practitioner should refer to
which of the following sources for professional guidance?
A) Statement of Auditing Standards.
B) Statements on Standards for Attestation Engagements.
C) Statements on Standards for Accounting and Review Services.
D) Statements on Standards for Consulting Services.
Answer: B
Difficulty: 3 Hard
Topic: Auditing, Attestation, and Assurance Services
Learning Objective: 01-02 Define and contrast financial statement auditing, attestation, and
assurance services.
Blooms: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
6
Copyright © 2018 McGraw-Hill
,12) In auditing the long-term debt account, an auditor's procedures most likely would focus
primarily on management's assertion of:
A) existence.
B) completeness.
C) allocation.
D) rights and obligations.
Answer: B
Difficulty: 2 Medium
Topic: Management's Financial Statement Assertions
Learning Objective: 01-03 Describe and define the assertions that management makes about the
recognition, measurement, presentation, and disclosure of the financial statements and explain
why auditors use them as the focal point of the audit.
Blooms: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
13) An auditor selected items for test counts from the client's warehouse during the physical
inventory observation. The auditor then traced these test counts into the detailed inventory listing
that ultimately agreed to the financial statements. This procedure most likely provided evidence
concerning management's assertion of:
A) completeness.
B) valuation.
C) presentation and disclosure.
D) existence.
E) rights and obligations.
Answer: A
Difficulty: 2 Medium
Topic: Management's Financial Statement Assertions
Learning Objective: 01-03 Describe and define the assertions that management makes about the
recognition, measurement, presentation, and disclosure of the financial statements and explain
why auditors use them as the focal point of the audit.
Blooms: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
7
Copyright © 2018 McGraw-Hill
,14) An auditor selected items from the client's detailed inventory listing (that agreed to the
financial statements). During the physical inventory observation, the auditor then found each
item selected and counted the number of units on hand. Assuming that the amount on hand was
the same as the amount in the client's detailed inventory listing, this procedure most likely would
provide evidence concerning management's assertion of:
A) completeness.
B) valuation.
C) presentation and disclosure.
D) existence.
E) rights and obligations.
Answer: D
Difficulty: 2 Medium
Topic: Management's Financial Statement Assertions
Learning Objective: 01-03 Describe and define the assertions that management makes about the
recognition, measurement, presentation, and disclosure of the financial statements and explain
why auditors use them as the focal point of the audit.
Blooms: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
15) According to PCAOB Auditing Standard No. 2201 (AS 2201), the auditor should identify
significant accounts and disclosures and their relevant assertions. Which of the following
financial statement assertions is not explicitly identified in AS 2201?
A) Completeness.
B) Valuation or allocation.
C) Accuracy.
D) Existence or occurrence.
E) All of these are assertions identified in AS 5.
Answer: C
Difficulty: 2 Medium
Topic: Management's Financial Statement Assertions
Learning Objective: 01-03 Describe and define the assertions that management makes about the
recognition, measurement, presentation, and disclosure of the financial statements and explain
why auditors use them as the focal point of the audit.
Blooms: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
8
Copyright © 2018 McGraw-Hill
,16) When testing the completeness assertion for a liability account, an auditor ordinarily works
from the:
A) financial statements to the potentially unrecorded items.
B) potentially unrecorded items to the financial statements.
C) accounting records to the supporting evidence.
D) trial balance to the subsidiary ledger.
Answer: B
Difficulty: 2 Medium
Topic: Management's Financial Statement Assertions
Learning Objective: 01-03 Describe and define the assertions that management makes about the
recognition, measurement, presentation, and disclosure of the financial statements and explain
why auditors use them as the focal point of the audit.
Blooms: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
17) If an auditor is performing procedures related to the information that is contained in the
client's pension footnote, he/she is most likely to obtain evidence concerning management's
assertion about:
A) rights and obligations.
B) existence.
C) valuation.
D) presentation and disclosure.
Answer: D
Difficulty: 2 Medium
Topic: Management's Financial Statement Assertions
Learning Objective: 01-03 Describe and define the assertions that management makes about the
recognition, measurement, presentation, and disclosure of the financial statements and explain
why auditors use them as the focal point of the audit.
Blooms: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
18) Which of the following questions would be inappropriate for an auditor to ask a client when
exhibiting an appropriate level of professional skepticism while completing an audit procedure
related to the internal control system?
A) What can go wrong in this process?
B) Which of your employees is a fraudster?
C) What else is important to know about this process?
D) What happens when a key employee goes on vacation?
Answer: B
Difficulty: 1 Easy
Topic: Professional Skepticism
Learning Objective: 01-04 Define professional skepticism and explain its key characteristics.
Blooms: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
9
Copyright © 2018 McGraw-Hill
, 19) To be proficient as an auditor, a person must first be able to accomplish which of these tasks
in a decision-making process?
A) Identify audit evidence relevant to the verification of assertions management makes in its
unaudited financial statements and notes.
B) Formulate evidence-gathering procedures (audit plan) designed to obtain sufficient,
competent evidence about assertions management makes in financial statements and notes.
C) Recognize the financial assertions made in management's financial statements and footnotes.
D) Evaluate the evidence produced by the performance of procedures and decide whether
management's assertions conform to generally accepted accounting principles and reality.
Answer: C
Difficulty: 3 Hard
Topic: Management's Financial Statement Assertions
Learning Objective: 01-03 Describe and define the assertions that management makes about the
recognition, measurement, presentation, and disclosure of the financial statements and explain
why auditors use them as the focal point of the audit.
Blooms: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
20) Which of the following is an underlying condition that in part creates the demand by users
for reliable information?
A) Economic transactions that are numerous and complex.
B) Decisions that are time-sensitive.
C) Users separated from accounting records by distance and time.
D) Financial decisions that are important to investors and users.
E) All of these.
Answer: E
Difficulty: 2 Medium
Topic: User Demand for Reliable Information
Learning Objective: 01-01 Define information risk and explain how the financial statement
auditing process helps to reduce this risk, thereby reducing the cost of capital for a company.
Blooms: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
10
Copyright © 2018 McGraw-Hill
