Auditing, Attestation, and Assurance

1. The single feature that most clearly distinguishes auditing,

attestation, and assurance is
a. Type of service.
b. Training required to perform the service.
c. Scope of services.
d. CPA’s approach to the service.

2. The primary goal of the CPA in performing the attest

function is to
a. Detect fraud.
b. Examine individual transactions so that the auditor
may certify as to their validity.
c. Determine whether the client's assertions are fairly
stated.
d. Assure the consistent application of correct
accounting procedures.

3. Internal auditing often extends beyond examinations

leading to the expression of an opinion on the fairness of
financial presentation and includes audits of efficiency,
effectiveness, and
a. Internal control.
b. Evaluation.
c. Accuracy.
d. Compliance.

4. Which of the following best describes the operational audit?

a. It requires the constant review by internal auditors
of the administrative controls as they relate to
operations of the company.
b. It concentrates on implementing financial and
accounting control in a newly organized company.
c. It attempts and is designed to verify the fair
presentation of a company's results of operations.
d. It concentrates on seeking out aspects of operations
in which waste would be reduced by the introduction
of controls.

5. The auditor's judgment concerning the overall fairness of

the presentation of financial position, results of
operations, and changes in financial position is applied
within the framework of
a. Generally accepted accounting principles.
b. Generally accepted auditing standards.
 c. Internal control.
d. Information systems control.

6. Which of the following is not considered an assertion as

formulated by the Auditing Standards Board?
a. Valuation or allocation.
b. Mathematical accuracy.
c. Rights and obligations.
d. Presentation and disclosure.

7. Which of the following is not a distinguishing feature of

risk-based auditing?
a. Identifying areas posing the highest risk of financial
statement errors.
b. Analysis of internal control.
c. Collecting and evaluating evidence.
d. Concentrating audit resources in those areas presenting
the highest risk of financial statement errors.

8. To maximize independence, the director of internal auditing

should report to the
a. Audit committee.
b. Controller.
c. Chief financial officer.
d. Director of information systems.

9. The auditor communicates the results of his or her work

through the medium of the
a. Engagement letter.
b. Management letter.
c. Audit report.
d. Financial statements.

10. The best description of the scope of internal auditing is

that it encompasses
a. Primarily operational auditing.
b. Both financial and operational auditing.
c. Primarily the safeguarding of assets and verifying the
existence of such assets.
d. Primarily financial auditing.

11. A typical objective of an operational audit is to determine

whether an entity's
a. Financial statements fairly present financial position
and cash flows.
b. Financial statements present fairly the results of
 operations.
c. Financial statements fairly present financial position,
results of operations, and cash flows.
d. Specific operating units are functioning efficiently
and effectively.
12. The scope and nature of an auditor's contractual obligation
to a client is ordinarily set forth in the
a. Scope paragraph of the auditor’s report.
b. Opinion paragraph of the auditor’s report.
c. Management letter.
d. Engagement letter.

13. The four major steps in conducting an audit are:

a. Testing internal controls
b. Audit report
c. Planning
d. Testing transactions and balances

The proper sequence in applying the above steps is:

a. cadb
b. cdab
c. bcda
d. adcb

13. Which of the following statements is not true regarding the

competence of audit evidence?
a. Relevance is enhanced by an effective information
system.
b. To be competent, evidence must be both valid and
relevant.
c. Validity is related to the quality of the client’s
information system.
d. Relevance must always relate to audit objectives.

15. As used in auditing, which of the following statements best

describes "assertions"?
a. Assertions are the representations of management as to
the reliability of the information system.
b. Assertions are the auditor's findings to be
communicated in the audit report.
c. Assertions are the representations of management as to
the fairness of the financial statements.
d. Assertions are found only in the footnotes to the
financial statements.

16. Which of the following statements is not a distinction

between independent auditing and internal auditing?
 a. Independent auditors represent third party users
external to the auditee entity, whereas internal
auditors report directly to management.
b. Although independent auditors strive for both validity
and relevance of evidence, internal auditors are
concerned almost exclusively with validity.
c. Internal auditors are employees of the auditee, whereas
independent auditors are independent contractors.
d. The internal auditor's span of coverage goes
beyond financial auditing to encompass operational
and performance auditing.

17. Which of the following best describes the purpose of the

engagement letter?
a. The engagement letter relieves the auditor of some
responsibility for the exercise of due care.
b. By clearly defining the nature of the engagement, the
engagement letter helps to avoid and resolve
misunderstandings between CPA and client regarding the
precise nature of the work to be performed and the type
of report to be issued.
c. The engagement letter conveys to management the
detailed steps to be applied in the audit process.
d. The engagement letter should be signed by both the
client and the CPA and should be used only for
independent audits.

18. In assessing audit risk, the CPA needs to do all of the

following except
a. Gather audit evidence in support of recorded
transactions.
b. Obtain an understanding of the client's system of
internal control.
c. Understand the economic substance of significant
transactions completed by the client.
d. Understand the entity and the industry in which it
operates.

19. Which of the following tasks should be performed prior to

the final audit?
a. Determining the fairness of property, plant, and
equipment.
b. Confirming accounts receivable.
c. Testing internal control.
d. Collecting and evaluating evidence supporting the
fairness of inventory values.
COMPLETION

20. An audit approach that attempts to identify areas posing the

highest probability of financial statement errors and
allocate audit resources to those areas is known as
_________ - ___________ auditing.
21. Because is the standard for measuring fairness,
independent auditors must be expert in accounting matters.
22. Independent auditing is considered necessary because
managers and stockholders have attitudes
toward financial reporting.
23. The most important characteristics contributing to
effective auditing are the ability of the auditor to
exercise and .
24. The assertion stating that no assets, equities, or
transactions have been omitted from the financial statements
is known as the ____________ assertion.

MATCHING:

25. Match each of the listed procedures with the primary

assertion that is satisfied by the procedure

a. existence or occurrence
b. completeness
c. rights and obligations
d. valuation or allocation
e. presentation and disclosure

____ 1. Calculated depreciation expense for the year

____ 2. Test counted client’s year end inventory of materials

and finished goods

____ 3. Examined vehicle title applicable to new truck purchased

during the current year

____ 4. Considered need for a footnote describing a lawsuit

pending against the client

____ 5. Conducted a search for unrecorded liabilities

____ 6. Advised client of the need to reclassify the current

portion of a long term mortgage note

____ 7. Performed tests to determine that overhead had been

 properly applied to ending inventory and cost of sales

____ 8. Reconciled client’s bank accounts as of year end

____ 9. Examined appraisal reports applicable to land donated by

the city

____ 10. Obtained written confirmation from customers

regarding year end balances in selected accounts
receivable