Chapter 01 – An Introduction to Assurance and Financial Statement Auditing
30. Preliminary engagement activities include
31. The auditor’s report is generally addressed to the
32. An auditor would issue an adverse opinion if
Chapter 01 – An Introduction to Assurance and Financial Statement Auditing
33. Which of the following is true with respect to the auditor’s report?
34. Which of the following is not a concept that is included in the scope paragraph of the
auditor’s report?
Chapter 01 – An Introduction to Assurance and Financial Statement Auditing
35. On a high level, the accounting processes of a business consist of internal controls,
individual transactions, and account balances.
Required:
Chapter 01 – An Introduction to Assurance and Financial Statement Auditing
36. Sally Thompson’s company, Sally’s Shoes, is a successful shoe retail business with one
store. Sally would like to expand to two locations, but the bank has asked for an independent
audit before it will provide financing. Sally hires her brother-in-law, George Thompson, to
perform the audit. George has experience in auditing non-profit organizations and he decides to
perform the audit the same way as his other audits. After completing all the steps of the audit
process, George issues an unqualified opinion indicating that he is certain that the company’s
financial statements contain no misstatements. Comment on any potential problems with
George’s audit of Sally’s Shoes.
Chapter 01 – An Introduction to Assurance and Financial Statement Auditing
37. Explain the relationship between audit, attest and assurance services.
All three services entail the evaluation of evidence to determine the correspondence of some
information to a set of criteria and the issuance of a report to indicate the degree of
correspondence.
Chapter 01 – An Introduction to Assurance and Financial Statement Auditing
1-18
38. Define “information asymmetry” and discuss it in the context of the financial markets.
Include in your discussion how information asymmetry is reduced.
39. The textbook presented the concept of auditing through an analogy that involved buying a
house and hiring a house inspector. Name three desirable qualities of a house inspector or an
auditor and discuss how those qualities apply to an auditor and why those qualities are
important for an auditor to possess.
Chapter 01 – An Introduction to Assurance and Financial Statement Auditing
Chapter 01 – An Introduction to Assurance and Financial Statement Auditing
40. Discuss an overview of the financial statement audit process using the terms “assertion,”
“evidence,” and “report.”
41. You are a new employee at the accounting firm Murray & Murray, CPAs. Before you are
assigned to your first audit, your supervisor tests your knowledge and asks you to explain the
term “scope” in the context of a financial statement audit.
Required:
Chapter 01 – An Introduction to Assurance and Financial Statement Auditing
42. Why must an auditor assess materiality?
43. You are a new staff auditor and you are auditing a client’s inventory account. Briefly
describe one way you might obtain direct evidence and one way you might obtain indirect
evidence that the inventory account balance is fairly stated.
Chapter 01 – An Introduction to Assurance and Financial Statement Auditing
44. Name and discuss the seven phases of the audit process.
Chapter 01 – An Introduction to Assurance and Financial Statement Auditing
45. A standard, unqualified auditor’s report contains three paragraphs, plus a fourth explanatory
paragraph in some circumstances. Provide a brief (one sentence) description for each
paragraph.
46. Explain the relationship between sample size, materiality, and desired level of assurance.