Jasper S.

Buenviaje
3rd Year BS Accountancy

1) A(n) ________ failure occurs when an auditor issues an erroneous opinion because it failed to
comply with requirements of auditing standards.
A) business
B) audit
C) ethics
D) process

2) The expectation gap

A) exists between the auditor and the SEC.
B) exists because auditors guarantee the accuracy of the financial statements.
C) often results in unwarranted lawsuits against the auditor.
D) is a legal concept supported by the federal courts.

3) Which of the following is an accurate statement regarding audit risk, audit failure, and
business failure?
A) Audit risk is always avoidable if the audit is conducted in accordance with generally accepted
auditing standards.
B) Because auditors gather evidence on a test basis, and because well-concealed frauds are
difficult to detect, audit risk is unavoidable.
C) Legal precedent makes it easy to determine who has the right to recover losses in the event of
an audit failure.
D) A business failure will always result in an audit failure.

4) Audit risk is the risk there will be an audit failure for a given audit engagement.

True

5) The term "audit failure" refers to the situation when the auditor has followed auditing
standards yet still fails to discover that the client's financial statements are materially misstated.

True

6) The term "audit failure" refers to the situation when the auditor issues an incorrect audit
opinion that a qualified auditor, following auditing standards, would have not issued.

False

7) The term "business failure" has basically the same meaning as "audit failure" as they pertain
the auditing profession.
Jasper S. Buenviaje
3rd Year BS Accountancy

False

8) Audit risk is avoidable, as long as the auditor performs the audit in accordance with auditing
standards.

True

9) When an audit has failed to uncover material misstatements and the wrong type of audit
opinion is issued, it is not appropriate to question whether the auditor exercised due professional
care in the performance of the audit.

True

10) There is a public perception that auditors guarantee the accuracy of the financial statements
they have audited and guarantee the financial viability of the business.

True