Test Bank For Auditing A Business Risk Approach 8th Edition by Rittenburg
Test Bank For Auditing A Business Risk Approach 8th Edition by Rittenburg
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Chapter 1: Auditing: Integral to the Economy
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Question 1
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Question The need for assurance services arises because the interests of the users of information may be different from that of the
interests of those responsible for providing information.
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True
False
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Question 2
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Question 3
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Question 4
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Question A bank using Milton Company's financial statements to determine the creditworthiness of a potential loan to Milton is a good
example of the need for unbiased reporting.
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True
False
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Question 5
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Question 6
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Question 7
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Question Attestation services are a subset of assurance services and always involve a report that goes to a third party.
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True
False
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Question 8
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Question The American Institute of Certified Public Accountants has the primary authority to set auditing standards for public
companies.
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True
False
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Question 9
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Question The audit function is unique because it exists to perform services on a "client" on behalf of shareholders, directors and other
parties.
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False
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Question 10
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Question Auditing is the process of attesting to assertions about economic actions and events.
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Question 11
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Question Auditing is the process of verifying the accuracy of the financial statements.
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False
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Question 12
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Question 13
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Question Auditing primarily exists because users need unbiased information on which to assess management performance and make
economic decisions.
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True
False
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Question 14
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Question The degree of confidence that users place on management's financial statements is higher than that placed on audited
financial statements because few users have direct knowledge of the company's operations and management is the most
knowledgeable about operations.
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True
False
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Question 15
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Question U.S. nonpublic companies will have an audit performed in accordance with generally accepted auditing standards that have
been promulgated by the PCAOB.
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True
False
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Question 16
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Question An assertion is a statement about an action, event, condition, or performance over a specified time period.
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True
False
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Question 17
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Question Management is required to comment on the fairness of the company's financial presentation. This reduces the auditor's legal
responsibility for the opinion rendered on the financial statements.
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True
False
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Question 18
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Question Audited financial statements should be free from all errors and fraud.
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False
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Question 19
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Question Audited financial statements should be presented fairly according to the substance of GAAP.
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False
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Question 20
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Question Audited financial statements should be presented fairly according to the substance of GAAS.
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False
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Question 21
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Question A plan to converge the U.S. generally accepted auditing standards (GAAS) with the International Standards on Auditing
(ISAs) was developed by the .AICPAs Auditing Standards Board (ASB).
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True
False
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Question 22
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Question 23
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Question An auditor must have a good understanding of the risks associated with a client's industry in order to ensure that the financial
statements reflect the underlying substance of accounting transactions and the economic effects of such transactions.
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True
False
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Question 24
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Question Public Company Accounting Oversight Board provides the criteria against which the auditor measures the fairness of
financial statement presentation for public companies.
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True
False
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Question 25
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Question Generally accepted accounting principles provide the criteria against which the auditor measures the fairness of financial
statement presentation.
Answer
True
False
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Question 26
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Question Businesses that use independent auditors do not need the use of internal auditors.
Answer
True
False
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Question 27
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Question CPA certificates for auditors are issued by state boards of accountancy.
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True
False
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Question 28
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Question 29
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Question Operational audits are designed to determine if the companys financial statements are prepared in compliance with GAAP.
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True
False
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Question 30
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Question 31
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Question The internal audit profession adheres exclusively to standards set by the Public Company Accounting Oversight Board.
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True
False
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Question 32
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Question The execution of solutions to issues brought to light by internal auditors are the responsibility of management of the
organization.
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True
False
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Question 33
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Question 34
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Question The American Institute of CPAs sets auditing standards for non-publicly traded companies.
Answer
True
False
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Question 35
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Question Though often relying on the FASB, the SEC has authority to establish GAAP for publicly traded companies.
Answer
True
False
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Question 36
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Question The SEC has authority to establish GAAP for all business enterprises.
Answer
True
False
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Question 37
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Question The Public Company Accounting Oversight Board was established by the AICPA in response to Securities law.
Answer
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False
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Question 38
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Question Auditors of public companies need not adhere to the requirements of statutory or regulatory organizations.
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Question 39
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Question When the auditor has no reservations about managements financial statements, then the report issued is called a qualified
report.
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Question 40
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Question Auditors need only understand the rules of accounting as the principles are outdated.
Answer
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False
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Question 41
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Question 42
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Question An audit and an assurance service both require a report to a third party.
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True
False
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Question 43
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Question The purpose of assurance services is to improve the quality of the information provided.
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True
False
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Question 44
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Question 45
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Question 46
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Question The need for assurance services arises for all of the following reasons EXCEPT:
Answer
potential bias in providing information.
Closeness between a user and the organization.
complexity of the processing systems.
remoteness between a user and the organization.
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Question 47
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Question Independent professional services that are provided on financial or other information that improve the quality of decision
making are known as
Answer
internal auditing.
financial auditing.
assurance services.
attestation services.
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Question 48
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Question Which one of the following is not a critical component of assurance services?
Answer
a process on which service is provided
an assurance service provider
a user who derives value
a CPA
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Question 49
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Question Which one of the following is not a key attribute needed to perform assurance?
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subject matter knowledge
independence
established criteria or standards
accounting skills
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Question 50
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Question A service that always requires that a report is provided to a third party is
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assurance
attestation
audit
Both B and C.
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Question 51
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Question Which one of the following is not part of the attest process?
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gathering evidence about assertions
proving the accuracy of the books and records
evaluating evidence against objective criteria
communicating the conclusions reached
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Question 52
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Question 53
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Question Which one of the following is a potential problem with management's communication of financial information that causes third
parties to desire the independent auditor's assessment of the financial statement presentation?
Answer
complexity of transactions affecting the financial statements
lack of criteria on which to base information
remoteness of the user from the organization
A and C
A and B
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Question 54
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Question Users of the audit report can reasonably expect the audited financial statements to be
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Question 55
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Question Which one of the following is not a management expectation for independent auditors?
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an outside source of expertise on accounting matters
individuals who perform tests and draw conclusions on assertions
a participant in management decision making
a provider of a written communication
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Question 56
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Question 57
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Question Internal auditors may perform all of the following types of audits except
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operational audits.
compliance audits.
computer system audits.
all of the above may be performed by internal auditors.
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Question 58
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Question 59
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Question Which of the following services is the broadest and most inclusive?
Answer
Audit
Attestation
Assurance
Compliance
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Question 60
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Question An expectation of the public is that the auditor will recognize that the primary users of audit assurance are
Answer
the clients.
the Public Company Accounting Oversight Board.
members of management.
third-party users.
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Question 61
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Question 62
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Question Third-party users of the audit report expect the auditor to do all of the following except:
Answer
to evaluate measurements and disclosures made by management
to provide a biased evaluation of the financial statements
to determine whether financial statements are presented in accordance with GAAP
to gather sufficient evidence to support their opinion
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Question 64
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Question The auditor of financial statements must make very difficult interpretations regarding authoritative literature. Additionally, the
auditor must
Answer
consider whether the application of a generally accepted accounting principle best portrays the economic activity of the
company.
force management to make certain decisions regarding their financial statements.
disregard independence in order to find the underlying truth of the evidence.
establish new criteria by which financial statements may be compared.
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Question 65
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Question Results of the financial statement audit are communicated to users through a(n)
Answer
financial statement.
written management assertion.
audit report.
none of the above.
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Question 66
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Question 67
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Question The criteria against which the auditor measures the fairness of financial statement presentation are known as
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auditing standards.
generally accepted accounting principles.
generally accepted accounting standards.
governmental accounting principles.
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Question 68
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Question 69
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Question Which one of the following is an example of management expectations for independent auditors?
Answer
An expert providing a written communication as the product of the engagement.
Individuals who perform day-to-day accounting functions on behalf of the company.
An active participant in management decision making.
An internal source of expertise on financial and other matters.
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Question 70
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Question 71
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Question The internal audit profession has emerged and has become active for all of the following reasons except:
Answer
management's need for an objective appraisal of organizational or departmental performance
increased internal and external emphasis on effective procedures to detect or prevent fraud
compliance with Section 404 of the Sarbanes-Oxley Act of 2002
managements need to delegate the responsibility of the financial statements
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Multiple Choice
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Question Which one of the following statements is not true about internal auditing?
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Internal auditing is an objective evaluation function.
Internal auditing is established within an organization.
Internal auditing's purpose is to provide assurance regarding the company's compliance with stated policies and
procedures.
Internal auditing is established as an independent service to regulatory bodies and creditors.
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Question 73
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Question An audit which has as its purpose the evaluation of the economy and efficiency with which resources are employed is known
as a(n)
Answer
financial audit.
compliance audit.
operational audit.
governmental audit.
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Question 74
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Question The audit committee of the board of directors of a company is responsible for
Answer
hiring the auditor.
preparing the financial statements.
the audit workpapers.
independence and obtaining evidence.
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Question 75
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Question The AICPA remains a valuable organization because of its continuing involvement in
Answer
the audit standard setting process.
regulation and enforcement of the audit profession.
education and administration of the CPA exam.
promulgation of accounting standards.
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Question 76
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Question 77
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Question The primary governing board that performs quality reviews on registered CPA firms that audit public companies is the
Answer
PCAOB
GAO
AICPA
FASB
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Question 78
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Question Congress authorized which of the following organizations to establish generally accepted accounting principles for public
companies?
Answer
SEC
APB
AICPA
FASB
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Question 80
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Question 81
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Question 82
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Question 83
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Question The organization that issued the Internal Control, Integrated Framework which serves as the primary criterion for evaluating
the quality of a companys internal control system is
Answer
PCAOB
COSO
AICPA
GAO
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Question 84
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Question Auditing is a systematic process that includes all of the following except:
Answer
communicating results to users
procuring and evaluating evidence
providing important managerial decisions for a client
comparing evidence regarding assertions to certain established criteria
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Question 86
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Question 87
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Question 88
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Question 89
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Question 90
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Question 91
Essay
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Question 92
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Question 93
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Question 94
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Question 95
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Question 96
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Question 98
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Question 99
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Page 12 of 12
The party who provides information may bias that information to convey a better impression than the real
circumstances merit.
Remoteness between an information user and the organization.
The complexity of transactions, information or processing systems may make it difficult to determine a proper
presentation without an independent review.
There is a need to minimize financial surprises. Material errors and fraud must be found and corrected prior to the
release of audited financial statements.
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Question 100
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