Which of the following best describes the fundamental underlying reason for why there is demand for an independent auditor to report on financial statements?

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Why do auditors generally use a sampling approach to evidence gathering?
Which of the following statements best describes a relationship between sample size and other elements of auditing?
Which of the following statements about the study of auditing is NOT true?
4. The basic purpose of a financial statement audit is to
5. Assurance services may improve all of the following except:
6. Evidence is reliable if it
7. Which of the following best describes the concept of audit risk?
8. An auditor who accepts an audit engagement and does not possess expertise with respect to the business entity's industry, should
9. For publicly-held companies, the external auditor is required to audit which of the following:
10. During the first phase of an audit, a CPA most likely would
11. In the context of agency theory, information asymmetry refers to the idea that
12. Which of the following best describes why an independent auditor is asked to express an opinion on the fair presentation of financial statements?
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?
14. Which of the following best describes why publicly-traded corporations follow the practice of having the external auditor appointed by the board of directors or elected by the stockholders?
15. The definition of auditing refers to auditing as a "systematic process of objectively obtaining and evaluating evidence regarding assertions" What is meant by "systematic process?"
16. Which of the following would best be described as an assurance service?
17. Which of the following statements is not true with respect to assurance, attest, and audit services?
18. Auditors are most likely to use the most rigorous audit procedures to examine
19. When obtaining an understanding of the entity and its environment, the auditor should obtain an understanding of internal controls primarily to
20. Which one of the following statements best describes the concept of materiality?
21. Before accepting an engagement to audit a new client, an auditor is required to
22. An investor is reading the financial statements of A Corporation and observes that the statements are accompanied by an auditor's unqualified report. From this, the investor may conclude that:
23. Preliminary engagement activities include:
24. The auditor's report is generally addressed to the:
25. An auditor would issue an adverse opinion if
26. Which of the following is true with respect to the auditor's report?
27. Which of the following is not a concept that is included in the scope paragraph of the auditor's report?
1. The Audit committee consists of:
2. What organization is responsible for setting auditing standards for audits of publicly-traded companies in the U.S.?
3. The Public Company Accounting Oversight Board's role is to
4. The authoritative body designed to promulgate standards concerning an accountant's association with audited financial statements of an entity that is required to file financial statements with the SEC is the
5. Which of the following describes the generally accepted auditing standard requiring a critical review of the work done and the judgment exercised by those assisting in an audit at every level of supervision?
6. Because of the risk of material misstatement, an audit of financial statements in accordance with generally accepted auditing standards should be planned and performed with an attitude of
7. The primary responsibility for the adequacy of disclosures in the financial statements of a publicly held company rests with the
8. Which of the following best describes the concept of risk assessment on which auditors can provide independent assurance?
9. Forensic audits include all of the following except
10. A typical objective of an operational audit is for the auditor to
11. Governmental auditing often extends beyond examinations leading to the expression of an opinion on the fairness of financial presentation and includes audits of efficiency, effectiveness, economy and
12. External auditors are referred to as "external" because
13. What is the general character of the work conducted in performing a forensic audit for a company?
14. Which of the following is NOT a requirement of the Sarbanes-Oxley Act?
15. Who is ultimately responsible for the accuracy of a financial statement?
16. The AICPA's Statements on Auditing Standards can be described as
17. With regard to detecting fraud, auditing standards require auditors to
18. An internal auditor is likely to be more concerned with _________________ than the external auditor.
19. Which of the following is not included in the broad category of assurance services?
20. Due professional care requires
21. Which of the following best describes the role of corporate governance?
22. Which of the following best describes what is meant by generally accepted auditing standards?
23. Which assertions may be tested for the "account balances" category of management assertions?
24. Which assertions may be tested for the transactions and events category of management assertions?
25. Which assertions may be tested for the presentation and disclosure category of management assertions?
1. Engagement risk is:
2. Engagement risk can be eliminated by
Client risk as defined as
4. Under Statements on Auditing Standards, which of the following would be classified as an error?
5. When assessing the risk of material misstatement, auditors evaluate the reasonableness of an entity's accounting estimates. An auditor normally would be concerned about assumptions that are
6. Which of the following characteristics most likely would heighten an auditor's concern about the risk of intentional manipulation of financial statements?
7. Which of the following is a known misstatement?
8. Tolerable misstatement is
9. Which of the following would an auditor most likely use in determining the planning materiality?
10. Which of the following is not a qualitative factor that may affect an auditor's establishment of materiality
11. Which of the following is not a concern as to whether a misstatement is qualitatively material?
12. The risk that an auditor will conclude, based on substantive procedures, that a material error does not exist in an account balance when, in fact, such error does exist is referred to as
13. The risk of material misstatement differs from detection risk in that it
14. All of the following are inherent risk except
15. When an auditor increases the assessed level of risk of material misstatement because certain control procedures were determined to be ineffective, the auditor would most likely increase the
16. Which of the following audit risk components may be assessed in qualitative terms?
17. When an entity moves into a significant new line of business, all of the following increase except
18. Which of the following procedures would not be used to obtain an understanding of the entity and its environment?
19. Which of the following is not an important consideration in an auditor's evaluation of an entity's business risk?
20. Which of the following relatively small misstatements most likely would have a material effect on an entity's financial statements?
21. In general, frauds perpetrated by which of the following are most difficult to detect?
22. The primary responsibility for preventing fraud in an organization lies with
23. All of the following represent an increased opportunity to commit fraud except:
24. An auditor discovers a likely fraud during an audit but concludes that the overall effect of the fraud is not sufficiently material to affect the audit opinion. The auditor should probably
25. Which of the following is the most important qualitative factor that auditors should consider when making materiality judgments? A
27. As the acceptable level of detection risk decreases, an auditor may change the
28. As the acceptable level of detection risk decreases, the assurance directly provided from
29. Increased fraud risk could also result in all of the following except
30. The objectives of the engagement partner's communication with the audit team include
31. The auditor assumes a higher risk of fraud may exist if
32. Which of the following factors most likely would heighten an auditor's concern about the risk of fraudulent financial reporting?
33. A properly planned and performed audit may fail to detect a material misstatement resulting from fraud because
34. Which of the following is correct concerning required auditor communications about fraud?
35. Which element(s) is/are pervasive to the application of generally accepted auditing standards, particularly the standards of fieldwork and reporting?
36. Which of the following statements is not correct about materiality?
1. A confirmation is for verifying:
2. Which of the following elements ultimately determines the amount of audit work that is necessary in the circumstances to afford a reasonable basis for an opinion?
3. To be sufficient, an evidence must
4. When completing an audit, an auditor asserts about
5. In testing plant and equipment balances, an auditor may physically inspect new additions listed on the summary of plant and equipment transactions for the year. This procedure is designed to obtain assertion about
6. Tracing tests the assertion about
7. Vouching tests the assertion about
8. Of the following, which is the least persuasive type of audit evidence?
9. Audit documents belong to the
10. Which of the following procedures would an auditor most likely perform to verify management's assertion of completeness?
11. The primary purpose of audit procedures is
12. An audit program is designed to
13. Which statement concerning audit evidence is not valid?
14. Each of the following might, by itself, form a valid basis for an auditor to reduce substantive testing except for the
15. Of the following, the most reliable type of evidence typically is
16. Which of the following presumptions is correct about reliability of audit evidence?
17. Which of the following types of documentary evidence should the auditor consider to be the most reliable?
18. Which of the following is the least persuasive documentation in support of an auditor's opinion?
19. Which of the following statements is generally correct about the appropriateness of audit evidence?
20. Which of the following types of audit evidence is the most persuasive?
21. Which of the following statements about accounting records and audit documentation is correct?
22. Audit documents record the results of the auditor's evidence-gathering procedures. When preparing audit documents, the auditor ensures audit documents are
23. Audit documents that record the procedures used by the auditor to gather evidence should be
24. In creating lead schedules for an audit engagement, the auditor begins with
25. Audit documentation
26. Based on conversations with the owner-manager of an audit client, the auditor ascertained that the company's primary motivation is to avoid paying income taxes. Based on this motivation, for the closing inventory, the auditor most concerned about assertion is
27. Your audit client is under intense pressure to meet an earnings target. Which transaction assertion within the purchasing process are you most concerned with?
28. You are concerned with unrecorded transactions in the purchasing cycle. Which audit procedure are you most likely to use when auditing purchases?
29. Which of the following statements concerning audit evidence is correct?
30. The permanent audit file usually includes:
31. The current audit file usually includes:
Why there is demand for an independent auditor to report on financial statements?
Which of the following best describes why an independent auditor is asked to express an opinion on the presentation of financial reports?
Which of the following best describe the concept of audit risk?
Which of the following statements best describes why an auditor makes a preliminary estimate of materiality?

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Why do auditors generally use a sampling approach to evidence gathering?

Auditors must balance the cost of the audit with the need for precision.

Which of the following statements best describes a relationship between sample size and other elements of auditing?

If materiality decreases, sample size will need to increase.

Which of the following statements about the study of auditing is NOT true?

The study of auditing focuses on learning the rules, techniques, and computations required to analyze financial statements.

4. The basic purpose of a financial statement audit is to

C. Provide assurance regarding whether the client's financial statements are fairly stated.

5. Assurance services may improve all of the following except:

Periodicity

6. Evidence is reliable if it

A. Signals the true state of a management assertion.

7. Which of the following best describes the concept of audit risk?

B. The risk that the auditor will provide an unqualified opinion on financial statements that are, in fact, materially misstated.

8. An auditor who accepts an audit engagement and does not possess expertise with respect to the business entity's industry, should

B. Obtain a knowledge of matters that relate to the nature of the entity's business.

9. For publicly-held companies, the external auditor is required to audit which of the following:

B. The company's internal controls.

10. During the first phase of an audit, a CPA most likely would

C. Discuss the timing of the audit procedures with the client's management.

11. In the context of agency theory, information asymmetry refers to the idea that

C. Management has more information about the entity's true financial position than do the absentee owners (i.e. stockholders).

12. Which of the following best describes why an independent auditor is asked to express an opinion on the fair presentation of 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.

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?

B. Different interests may exist between the company preparing the statements and the parties using the statements.

14. Which of the following best describes why publicly-traded corporations follow the practice of having the external auditor appointed by the board of directors or elected by the stockholders?

B. To enhance auditor independence from the management of the corporation.

15. The definition of auditing refers to auditing as a "systematic process of objectively obtaining and evaluating evidence regarding assertions" What is meant by "systematic process?"

C. There should be a well-planned approach for obtaining and evaluating evidence.

16. Which of the following would best be described as an assurance service?

C. Offering an opinion concerning the accuracy of statements made on a client's web site relating to the client's online privacy policies.

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.

18. Auditors are most likely to use the most rigorous audit procedures to examine

D. Management assertions that are deemed to be of high risk.

19. When obtaining an understanding of the entity and its environment, the auditor should obtain an understanding of internal controls primarily to

A. Identify areas of relatively high risk of misstatement and plan the audit accordingly.

20. Which one of the following statements best describes the concept of materiality?

D. Materiality is largely a matter of professional judgment.

21. Before accepting an engagement to audit a new client, an auditor is required to

A. Make inquiries of the predecessor auditor.

22. An investor is reading the financial statements of A Corporation and observes that the statements are accompanied by an auditor's unqualified report. From this, the investor may conclude that:

A. Any disputes over significant accounting issues have been settled to the auditor's satisfaction.

23. Preliminary engagement activities include:

D. Determining engagement team requirements.

24. The auditor's report is generally addressed to the:

C. Stockholders of the company.

25. An auditor would issue an adverse opinion if

D. The statements taken as a whole do not fairly present the financial condition and results of operations of the company.

26. Which of the following is true with respect to the auditor's report?

B. The report indicates that the client's financial statements were audited in accordance with applicable auditing standards.

27. Which of the following is not a concept that is included in the scope paragraph of the auditor's report?

A. The conformance of the financial statements with generally accepted accounting principles.

1. The Audit committee consists of:

C. Members of the Board of Directors

2. What organization is responsible for setting auditing standards for audits of publicly-traded companies in the U.S.?

PCAOB

3. The Public Company Accounting Oversight Board's role is to

B. Oversee the auditors of public companies in order to protect the interests of investors

4. The authoritative body designed to promulgate standards concerning an accountant's association with audited financial statements of an entity that is required to file financial statements with the SEC is the

C. Public Companies Accounting Oversight Board

5. Which of the following describes the generally accepted auditing standard requiring a critical review of the work done and the judgment exercised by those assisting in an audit at every level of supervision?

D. Due care

6. Because of the risk of material misstatement, an audit of financial statements in accordance with generally accepted auditing standards should be planned and performed with an attitude of

C. Professional skepticism

7. The primary responsibility for the adequacy of disclosures in the financial statements of a publicly held company rests with the

B. Management of the company

8. Which of the following best describes the concept of risk assessment on which auditors can provide independent assurance?

C. Whether management has systems in place to evaluate and effectively manage the entity's business risks

9. Forensic audits include all of the following except

B. Manufacturers' assertions about product quality

10. A typical objective of an operational audit is for the auditor to

C. Make recommendations for improving performance

11. Governmental auditing often extends beyond examinations leading to the expression of an opinion on the fairness of financial presentation and includes audits of efficiency, effectiveness, economy and

D. Compliance

12. External auditors are referred to as "external" because

C. They are not employees of the entity being audited

13. What is the general character of the work conducted in performing a forensic audit for a company?

B. Detecting or deterring fraudulent activity

14. Which of the following is NOT a requirement of the Sarbanes-Oxley Act?

D. A certain number of hours, which is based on the size of the company being audited, must be spent on each audit engagement

15. Who is ultimately responsible for the accuracy of a financial statement?

D. Management of the organization.

16. The AICPA's Statements on Auditing Standards can be described as

C. Defining the minimum standards of performance for an auditor

17. With regard to detecting fraud, auditing standards require auditors to

B. Provide reasonable assurance that the financial statements are not materially misstated because of fraud

18. An internal auditor is likely to be more concerned with _________________ than the external auditor.

C. Efficiency of operations

19. Which of the following is not included in the broad category of assurance services?

C. accounting or review services

20. Due professional care requires

A. Auditors to plan and perform their duties with the skill and care that is commonly expected of accounting professionals

21. Which of the following best describes the role of corporate governance?

C. Holding the management team accountable to shareholders and other constituents for the utilization of the entity's resources.

22. Which of the following best describes what is meant by generally accepted auditing standards?

C. Standards of quality for the auditor's performance

23. Which assertions may be tested for the "account balances" category of management assertions?

B. Existence, rights and obligations, completeness, valuation and allocation

24. Which assertions may be tested for the transactions and events category of management assertions?

C. Occurrence, completeness, authorization, accuracy, cutoff and classification

25. Which assertions may be tested for the presentation and disclosure category of management assertions?

D. Occurrence, rights and obligations, completeness, classification and understandability, accuracy and valuation.

1. Engagement risk is:

B. The auditor's risk of loss from events arising in connection with financial statements audited and reported upon

2. Engagement risk can be eliminated by

D. Engagement risk cannot be eliminated

Client risk as defined as

. the overall risk of material misstatement

4. Under Statements on Auditing Standards, which of the following would be classified as an error?

B. Misinterpretation by management of facts that existed when the financial statements were prepared

5. When assessing the risk of material misstatement, auditors evaluate the reasonableness of an entity's accounting estimates. An auditor normally would be concerned about assumptions that are

A. Susceptible to bias

6. Which of the following characteristics most likely would heighten an auditor's concern about the risk of intentional manipulation of financial statements?

C. Management places substantial emphasis on meeting earnings projections

7. Which of the following is a known misstatement?

B. A fixed asset being recorded at the incorrect cost

8. Tolerable misstatement is

D. Materiality allocated to a specific account

9. Which of the following would an auditor most likely use in determining the planning materiality?

B. The entity's annualized interim (i.e. quarterly) financial

10. Which of the following is not a qualitative factor that may affect an auditor's establishment of materiality

C. Firm policy sets materiality at 4% of pretax income

11. Which of the following is not a concern as to whether a misstatement is qualitatively material?

B. The misstatement is less than 5% of pretax income

12. The risk that an auditor will conclude, based on substantive procedures, that a material error does not exist in an account balance when, in fact, such error does exist is referred to as

B. Detection risk

13. The risk of material misstatement differs from detection risk in that it

C. Exists independently of the actions of the auditor

14. All of the following are inherent risk except

D. Supplies inventory is difficult to count

15. When an auditor increases the assessed level of risk of material misstatement because certain control procedures were determined to be ineffective, the auditor would most likely increase the

C. Extent of substantive tests

16. Which of the following audit risk components may be assessed in qualitative terms?

D. Both risk of material misstatement and detection risk

17. When an entity moves into a significant new line of business, all of the following increase except

B. Acceptable audit risk

18. Which of the following procedures would not be used to obtain an understanding of the entity and its environment?

C. Verify proper valuation of inventory subject to technological obsolescence

19. Which of the following is not an important consideration in an auditor's evaluation of an entity's business risk?

D. Audit standards require the auditor to evaluate the entity's business risk in order to provide suggestions to improve the entity's profitability

20. Which of the following relatively small misstatements most likely would have a material effect on an entity's financial statements?

A. An illegal payment to a foreign official that was not

21. In general, frauds perpetrated by which of the following are most difficult to detect?

D. Controller

22. The primary responsibility for preventing fraud in an organization lies with

D. The management

23. All of the following represent an increased opportunity to commit fraud except:

B. The auditor's relationship with management is strained

24. An auditor discovers a likely fraud during an audit but concludes that the overall effect of the fraud is not sufficiently material to affect the audit opinion. The auditor should probably

A. Disclose the fraud to the appropriate level of the client's management

25. Which of the following is the most important qualitative factor that auditors should consider when making materiality judgments? A

C. The misstatement will cause the client to fail to meet an earnings forecast

A. Extent of the substantive procedures

27. As the acceptable level of detection risk decreases, an auditor may change the

B. Nature of substantive procedures from less effective to more effective

28. As the acceptable level of detection risk decreases, the assurance directly provided from

A. Substantive procedures should increase

29. Increased fraud risk could also result in all of the following except

C. Lower control risk

30. The objectives of the engagement partner's communication with the audit team include

D. Emphasizing the importance of professional skepticism

31. The auditor assumes a higher risk of fraud may exist if

C. Inadequate segregation of duties places an employee in a position to perpetrate and conceal theft

32. Which of the following factors most likely would heighten an auditor's concern about the risk of fraudulent financial reporting?

A. Inability to generate cash flows from operations while reporting substantial earnings growth

33. A properly planned and performed audit may fail to detect a material misstatement resulting from fraud because

A. Audit procedures that are otherwise effective may be ineffective for fraud that is concealed through collusion

34. Which of the following is correct concerning required auditor communications about fraud?

A. Fraud that involves senior management should be reported directly by the auditor to the audit committee regardless of the amount involved

35. Which element(s) is/are pervasive to the application of generally accepted auditing standards, particularly the standards of fieldwork and reporting?

A. The elements of materiality and audit risk

36. Which of the following statements is not correct about materiality?

B. An auditor considers materiality for the aggregate level of misstatements that could be material to any one of the financial statements individually

1. A confirmation is for verifying:

C. a representation from a third party.

2. Which of the following elements ultimately determines the amount of audit work that is necessary in the circumstances to afford a reasonable basis for an opinion?

A. Auditor judgment

3. To be sufficient, an evidence must

D. Be persuasive enough to enable the auditor to form an opinion

4. When completing an audit, an auditor asserts about

C. presentation and disclosure

5. In testing plant and equipment balances, an auditor may physically inspect new additions listed on the summary of plant and equipment transactions for the year. This procedure is designed to obtain assertion about

A. Occurrence

6. Tracing tests the assertion about

B. Completeness

7. Vouching tests the assertion about

A. Occurrence

8. Of the following, which is the least persuasive type of audit evidence?

C. Copies of client sales invoices inspected by the auditor

9. Audit documents belong to the

B. The auditor

10. Which of the following procedures would an auditor most likely perform to verify management's assertion of completeness?

Compare a sample of shipping documents to related sales invoices

11. The primary purpose of audit procedures is

C. To gather corroborative evidence about management's assertions

12. An audit program is designed to

D. Gather evidence about management's assertions

13. Which statement concerning audit evidence is not valid?

B. The auditor performs tests to collect convincing evidence that the financial statements are not misstated

14. Each of the following might, by itself, form a valid basis for an auditor to reduce substantive testing except for the

A. Difficulty and expense involved in testing a particular item

15. Of the following, the most reliable type of evidence typically is

C. Reperformance

16. Which of the following presumptions is correct about reliability of audit evidence?

D. An effective internal control system provides more reliable audit evidence

17. Which of the following types of documentary evidence should the auditor consider to be the most reliable?

B. Confirmation of an account payable balance mailed by and returned directly to the auditor

18. Which of the following is the least persuasive documentation in support of an auditor's opinion?

A. Schedules of details of physical inventory counts conducted by the client

19. Which of the following statements is generally correct about the appropriateness of audit evidence?

A. The more effective the internal control, the more assurance it provides about the reliability of the accounting data and financial statements

20. Which of the following types of audit evidence is the most persuasive?

C. Bank statements obtained from the client

21. Which of the following statements about accounting records and audit documentation is correct?

A. Accounting records belong to the client

22. Audit documents record the results of the auditor's evidence-gathering procedures. When preparing audit documents, the auditor ensures audit documents are

D. designed to facilitate the review and supervision of work done by auditors assigned to the engagement

23. Audit documents that record the procedures used by the auditor to gather evidence should be

C. Designed in an orderly fashion to facilitate the review of audit work by the senior, manager, and partner on the engagement

24. In creating lead schedules for an audit engagement, the auditor begins with

C. General ledger information, such as account numbers, prior-year account balances, and current year unadjusted information

25. Audit documentation

D. May be in paper, electronic, or some other form

26. Based on conversations with the owner-manager of an audit client, the auditor ascertained that the company's primary motivation is to avoid paying income taxes. Based on this motivation, for the closing inventory, the auditor most concerned about assertion is

Completeness

27. Your audit client is under intense pressure to meet an earnings target. Which transaction assertion within the purchasing process are you most concerned with?

Completeness

28. You are concerned with unrecorded transactions in the purchasing cycle. Which audit procedure are you most likely to use when auditing purchases?

B. Tracing vendor invoices to accounting records

29. Which of the following statements concerning audit evidence is correct?

D. A client's accounting data cannot be considered sufficient audit evidence to support the financial statements

30. The permanent audit file usually includes:

B. Organizational chart.

31. The current audit file usually includes:

A. Working trial balance.

Why is an independent auditor asked to express an opinion on the fair presentation of financial statements? The opinion of an independent party is needed because a company may not be objective with respect to its own financial statements.

Which of the following best describes the reason why an independent auditor reports on financial statements? An independent auditor has the responsibility to design the audit to provide reasonable assurance of detecting errors and fraud that might have a material effect on the financial standards.

The audit opinion is a very important part of the audit report because it makes a statement about a company's financial status to investors. The audit report provides a picture of a company's financial performance in a given fiscal year.

a description of the auditor's responsibility to express an opinion on the financial statements and the scope of the audit. an opinion paragraph containing an expression of opinion on the financial statements and a reference to the applicable financial reporting framework used to prepare the financial statements.

Why there is demand for an independent auditor to report on financial statements?

Independent auditors have a mandate to protect shareholders and potential investors from a public company's possible fraud and accounting improprieties. Company managers can use the results of an independent audit to improve company processes.

Which of the following best describes why an independent auditor is asked to express an opinion on the presentation of financial reports?

Which of the following best describes why an independent auditor is asked to express an opinion on the fair presentation of financial statements? 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.

Which of the following best describe the concept of audit risk?

The correct answer is A. Audit risk is defined as the risk that the monetary statements are incorrect even when the audit opinion declares that the financial reports do not have any material misstatements. Additionally, the audit risk components include detection, control, and inherent risk.

Which of the following statements best describes why an auditor makes a preliminary estimate of materiality?

Which of the following statements best describes why an auditor makes preliminary estimate of materiality? D. Estimating materiality early helps the auditor avoid legal liability.

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