Chapter 3

I. Multiple choice

1. Providing quantitative information that management and others can use to make
decisions is the function of
A. Accounting
B. Auditing.
C. Finance.
D. Computer information system.

2. Which of the following has primary responsibility for the fairness of the representations
made in financial statements?
A. Client’s management.
B. Independent auditor.
C. Audit committee.
D. PICPA.

3. An audit can have a significant effect on

A. Information risk.
B. The risk free interest rate.
C. Business risk.
D. All of these.

4. Which of the following attributes is more closely associated with attestation services
performed by a CPA firm than with other lines of professional work
A. Competence.
B. Integrity.
C. Keeping informed on current professional developments.
D. Independence.

5. In comparison to the external auditor, an internal auditor is more likely to be concerned

with
A. Internal administrative control.
B. Cost accounting procedures.
C. Operational auditing.
D. Internal control.

II. True or false

1. An audit designed to detect violation of laws and regulations would be a compliance

audit?
 A. True
B. False.

2. Governmental auditing often extends beyond examinations leading to the expression of

an opinion on the fairness of financial statements and includes audits of efficiency,
economy, effectiveness, and internal control?
A. True.
B. False.

3. When performing a compliance audit of a governmental entity, auditors are concerned

with whether the entity is achieving its objective?
A. True.
B. False. The entity is following laws and regulations.

4. When performing a compliance audit in a large corporation, an internal. auditor would

be most likely to examine a schedule indicating that insurance coverage is adequate?
A. True.
B. False. Records that indicate weather supervisors regularly evaluate employees and
communicate their findings to them.

5. The process of recording, classifying, and summarizing economic events in a logical

manner for the purpose of providing financial information for decision-making is
accounting?
A. True.
B. False.