TEST BANK For Auditing & Assurance Services: A
Systematic Approach, 12th Edition
Chapters 1 - 21 Complete
,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
,17) 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.
ANSWER: C
Difficulty: 2 Medium
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: Apply
AACSB: Communication
AICPA: FN Decision Making; BB Resource Management
18) 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 position than do the
absentee owners (i.e., stockholders).
D) management likely will not act in the best interests of the absentee owners.
ANSWER: C
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: BB Critical Thinking; FN Risk Analysis
, 19) Which of the following best describes why an independent auditor is asked 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.
ANSWER: C
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: Reflective Thinking
AICPA: FN Reporting; BB Critical Thinking
20) 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.
ANSWER: B
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: Analyze
AACSB: Reflective Thinking
AICPA: FN Reporting; BB Critical Thinking
