Chapter 01 – An Introduction to Assurance and Financial Statement Auditing
1. Independence standards are required for audits of public companies, but not for audits of
private companies.
2. Decision makers demand reliable information that is provided by accountants.
3. Information asymmetry seldom occurs.
Chapter 01 – An Introduction to Assurance and Financial Statement Auditing
4. Conflicts of interest often occur between absentee owners and managers.
5. Auditing services and attestation services are the same.
6. Auditing is a type of attest service.
7. Testing all transactions that occurred during the period is cost prohibitive.
Chapter 01 – An Introduction to Assurance and Financial Statement Auditing
8. Why do auditors generally use a sampling approach to evidence gathering?
9. Which of the following statements best describes a relationship between sample size and
other elements of auditing?
Chapter 01 – An Introduction to Assurance and Financial Statement Auditing
10. Which of the following statements about the study of auditing is NOT true?
11. The basic purpose of a financial statement audit is to
Chapter 01 – An Introduction to Assurance and Financial Statement Auditing
12. Assurance services may improve all of the following except
13. Evidence is reliable if it
14. Which of the following best describes the concept of audit risk?
Chapter 01 – An Introduction to Assurance and Financial Statement Auditing
15. An auditor who accepts an audit engagement and does not possess expertise with respect to
the business entity’s industry, should
16. For publicly-held companies, which of the following is integrated into the audit of financial
statements?
17. During the first phase of an audit, a CPA most likely would
Chapter 01 – An Introduction to Assurance and Financial Statement Auditing
18. In the context of agency theory, information asymmetry refers to the idea that
19. Which of the following best describes why an independent auditor is asked to express an
opinion on the fair presentation of financial statements?
Chapter 01 – An Introduction to Assurance and Financial Statement Auditing
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?
21. 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?
Chapter 01 – An Introduction to Assurance and Financial Statement Auditing
22. 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”?
23. Which of the following would best be described as an assurance service?
Chapter 01 – An Introduction to Assurance and Financial Statement Auditing
24. Which of the following statements is not true with respect to assurance, attest, and audit
services?
Chapter 01 – An Introduction to Assurance and Financial Statement Auditing
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26. When obtaining an understanding of the entity and its environment, the auditor should
obtain an understanding of internal controls primarily to
27. Which one of the following statements best describes the concept of materiality?
Chapter 01 – An Introduction to Assurance and Financial Statement Auditing
28. Before accepting an engagement to audit a new client, an auditor is required to
29. An investor is reading the financial statements of the Stankey Corporation and observes that
the statements are accompanied by an auditor’s unqualified report. From this, the investor may
conclude that