Chapter 1: The Demand for Audit and Other Assurance Services

Choose the correct answer for each of the following statements

1. In the audit of historical financial statements, the criteria used by the auditor for
evaluating information could be:
a. GAAP
b. COSO
c. Internal revenue code
d. GAAS
2. In auditing taxpayers' returns, the internal revenue agents mainly perform a (an):
a. Financial statement audit
b. Compliance audit
c. Operational audit
d. Non-assurance service

3. Which of the following professional services is an attestation engagement?

a. Consultation to provide computer-processing service
b. A review of financial statements
c. An income tax engagement to prepare federal returns
d. The preparation of financial statements

4. Which of the following is likely to be unique attribute to the audit work of CPAs as compared
to the work performed by practitioners of other professions?
a. Independence
b. Competence
c. Due professional care
d. Complex body of knowledge

5. Recording, classifying, and summarizing economic events in a logical manner for the purpose
of providing financial information for decision making is commonly called………..
a. Finance
b. Auditing
c. Accounting
d. Economics

6. The most common way for users to obtain reliable financial information is ………
a. User verification of information
b. User sharing information risk with management
c. Provision of audited financial statements
d. None of the above

1
 7. In comparison with the audit of financial statements, the review of such statements needs
a. Same amount of audit evidence
b. Less audit evidence
c. More audit evidence
d. No audit evidence

8. An evaluation of a company’s computer system to determine whether the computer is

being used effectively is which type of audit?
a. Operational audit
b. Financial statement audit
c. IT audit
d. Compliance audit

9. Which of the following is considered a type of non assurance service?

a- Accounting and bookkeeping service
b- Audit of financial statements
c- Review of financial statements
d- Audit of internal control over financial reporting

10. Who of the following auditors audits much of the financial information prepared by
various governmental entities?
a. External auditor
b. Internal auditor
c. GAO auditor
d. Internal revenue agent

State whether each of the following statements is: True or False

11. An example of quantifiable information that needs an audit is the effectiveness of

computer systems and the efficiency of manufacturing operations.

12. The criteria by which an auditor evaluates the information under audit may vary with the
information being audited.

13. An auditor must be competent and have an independent mental attitude.

14. Both accountants and auditors must possess expertise in the accumulation and
interpretation of audit evidence.
2
15. Results of compliance audits are typically reported to the company's management rather
than to a broad spectrum of outside users.

16. A review of financial statements provides a lower level of assurance than an audit of
financial statements.

17. External auditors examining IBM's financial statements, to determine the degree of
correspondence between those financial statements with U.S. GAAP, conduct an operational
audit.

18. Both financial statement audit and non assurance engagements produce a written report on
the assertion of another party.

19. Any service that requires a CPA firm to issue a report about the reliability of an assertion
that is the responsibility of another party is known as assurance service.

20. To become a certified public accountant, you must have minimum three years of
experience in auditing.

3
 Answer key

1. a 2. b 3. b 4.a 5. c

6. c 7. b 8. a 9. a 10. c

11. False 12. True 13. True 14. False 15. True

16. True 17. False 18. False 19. False 20. False