Chap 1 True false

5
Q
The criteria by which an auditor evaluates the information under audit may vary with the
information being audited.
TRUE OR FALSE
A
TRUE
6
Q
One criteria used by an external auditor to evaluate published financial statements is known as
generally accepted auditing standards.
TRUE OR FALSE
A
FALSE
The criteria used by an external auditor to evaluate published financial statements are not GAAS but
rather the International Standards on Auditing (ISA)
7
Q
Auditors strive to maintain a high level of independence to keep the confidence of users relying on
their reports.
TRUE OR FALSE
A
TRUE
8
Q
To perform an audit, there must be information in a verifiable form and some criteria by which the
auditor can evaluate the information.
TRUE OR FALSE
A
TRUE
9
Q
An auditor must be competent and have an independent mental attitude.
TRUE OR FALSE
A
TRUE
14
Q
Auditors focus on determining whether recorded information properly reflects the economic events
that occurred during the accounting period.
TRUE OR FALSE
A
TRUE
15
Q
Both accountants and auditors must possess expertise in the accumulation and interpretation of
audit evidence.
TRUE OR FALSE
A
FALSE
Just Auditors must possess expertise in the accumulation and interpretation of audit evidence.
accountant is not
18
Q
Auditing can have a significant effect on both information risk and business risk.
TRUE OR FALSE
A
FALSE
Auditing has no effect on either the risk-free interest rate or business risk, but it can have a
significant effect on information risk.
23
Q
As society becomes more complex, decision makers are more likely to receive reliable information.
TRUE OR FALSE
A
FALSE
As society becomes more complex, decision makers are more likely to receive unreliable information
24
Q
Management is required by GAAP to reduce information risk, even if the costs outweigh the
benefits.
A
FALSE
According to GAAP, management is not required to reduce information risk even if the costs
outweigh the benefits
34
Q
CPA firms are never allowed to provide bookkeeping services for clients.
TRUE OR FALSE
A
FALSE
CPA firms are allowed to provide bookkeeping services for clients
35
Q
Section 404 of the Sarbanes-Oxley Act requires public companies to have an external auditor attest
to their internal control over financial reporting.
TRUE OR FALSE
A
TRUE
36
Q
Most public companies’ audited financial statements are available on the SEC’s EDGAR database.
TRUE OR FALSE
A
TRUE
37
Q
The primary purpose of a management consulting engagement is to generate a recommendation to
management.
TRUE OR FALSE
A
TRUE
46
Q
The primary purpose of a compliance audit is to determine whether the financial statements are
prepared in compliance with generally accepted accounting principles.
TRUE OR FALSE
A
FALSE
The primary purpose of a compliance audit is to review how well an organization follows regulatory
guidelines
47
Q
Results of compliance audits are typically reported to the company’s management rather than to a
broad spectrum of outside users.
TRUE OR FALSE
A
TRUE
Results of compliance audits are typically reported to management, rather than outside users,
because management is the primary group concerned with the extent of compliance with prescribed
procedures and regulations.
48
Q
An integrated approach to auditing considers both the risk of misstatements and operating controls
intended to prevent misstatements.
TRUE OR FALSE
A
TRUE
51
Q
The primary role of the United States General Accounting Office is the enforcement of the federal
tax laws as defined by Congress and interpreted by the courts.
TRUE OR FALSE
A
FALSE
Internal revenue agents responsible for enforcing federal tax law
Chap 2
5
Q
When developing the audit objectives, the first step is to divide the financial statements into cycles.
TRUE OR FALSE
A
FALSE
The first step is understand objective and responsibility for the audit
10
Q
Because they operate the business on a daily basis, a company’s management knows more about
the company’s transactions and related assets, liabilities, and equity than the auditors.
TRUE OR FALSE
A
TRUE
11
Q
The annual reports of many public companies include a statement about management’s
responsibilities and relationship with the CPA firm.
TRUE OR FALSE
A
TRUE
12
Q
The auditors determine which disclosures must be presented in the financial statements.
TRUE OR FALSE
A
FALSE
The management of the company is responsible for determining which disclosures must be
presented in the financial statements
13
Q
The Sarbanes-Oxley Act provides for criminal penalties.
TRUE OR FALSE
A
TRUE
43
Q
Errors are usually more difficult for an auditor to detect than frauds.
TRUE OR FALSE
A
FALSE
Fraud is difficult to detect than error
44
Q
Other than inquiring of management about policies they have established to prevent illegal acts and
whether management knows of any laws or regulations that the company has violated, the auditor
should not search for illegal acts that do not have a direct effect on the financial statements unless
there is reason to believe they may exist.
TRUE OR FALSE
A
TRUE
45
Q
When an auditor believes that an illegal act may have occurred, the first step he or she should take is
to gather additional evidence to determine the extent of the illegality and if there is a direct impact
on the financial statements.
TRUE OR FALSE
A
TRUE
46
Q
Audits are expected to provide a higher degree of assurance for the detection of material frauds
than is provided for an equally material error.
TRUE OR FALSE
A
FALSE
47
Q
Auditors have a higher degree of responsibility for detecting illegal acts that have a direct effect on
the financial statements than illegal acts that do not have a direct effect on the financial statements.
TRUE OR FALSE
A
TRUE
48
Q
The auditor’s first course of action when an illegal act is uncovered should be to immediately notify
the appropriate authorities, including but not limited to, law enforcement and the Securities and
Exchange Commission.
TRUE OR FALSE
A
FALSE
The auditor’s first course of action when an illegal act is uncovered is to communicate the matter to
an appropriate level of management
49
Q
An audit generally provides no assurance that illegal acts that do not have a direct effect on the
financial statements will be detected.
TRUE OR FALSE
A
TRUE
50
Q
Auditing standards indicate that reasonable assurance is a moderate, but not absolute, level of
assurance that the financial statements are free of material misstatement.
TRUE OR FALSE
A
FALSE
Reasonable assurance is a high level of assurance but not absolute
51
Q
In obtaining reasonable assurance that the financial statements are free of material misstatement,
the auditor does not need to take into account the applicable legal and regulatory framework
relevant to the client.
TRUE OR FALSE
A
FALSE
the auditor needs to take into account the applicable legal and regulatory framework relevant to the
client The auditor will undertake procedures with the objective of identifying non-compliance with
such laws and regulations
52
Q
The objective of the audit of financial statements by an independent auditor is to verify that the
financial statements are free of misstatements and accurately represent the company’s financial
position and results of operations.
TRUE OR FALSE
A
FALSE
Objective of the audit of financial statements is to provide FS users with an opinion whether the Fs
is presented true or fair view in accordance with applicable reporting framework
53
Q
As the impact from noncompliance is further removed from affecting the financial statements, the
less likely the auditor is to become aware of or recognize noncompliance when auditing the financial
statements.
TRUE OR FALSE
A
TRUE
61
Q
Auditors often convince themselves that they only accept clients they can trust and who have high
integrity.
TRUE OR FALSE

A
TRUE
62
Q
A suspension of judgment is the recognition that people’s motivations and perceptions can lead
them to provide biased or misleading information.
TRUE OR FALSE
A
FALSE
Suspension judgment is withholding judgment until appropriate evidence is obtained
68
Q
The profession has developed professional judgment frameworks that illustrate an effective
decision-making process.
TRUE OR FALSE
A
TRUE
69
Q
During the professional judgment process, the analysis may identify only one appropriate response
to the issue.
TRUE OR FALSE
A
FALSE
During the professional judgment process, the analysis may identify multiple appropriate responses
to the issue
70
Q
Overconfidence is the tendency to put more weight on information that is consistent with the initial
beliefs or preferences.
TRUE OR FALSE
A
FALSE
Overconfidence is the tendency that overestimate one’s own abilities to perform task or to make
accurate assessment of risks or other judgment and decisions
71
Q
In order to mitigate availability, the auditor should consult with others and make the opposing case.
TRUE OR FALSE
A
TRUE
79
Q
Under the cycle approach to segmenting an audit, transactions recorded in different journals should
never be combined with the general ledger balances that result from those transactions.
TRUE OR FALSE

A
FALSE
transactions recorded in different journals are combined with the general ledger balances that result
from those transactions. This approach is used to ensure that all transactions related to a particular
account or cycle are tested and that the financial statements are fairly presented.
80
Q
Under the cycle approach, the only accounts that have two or more cycles associated with them are
cash and accounts receivable.
TRUE OR FALSE

A
FALSE
81
Q
Although auditors need to consider the interrelationships between cycles, they typically treat cycles
independently to the extent practical to manage complex audits effectively.
TRUE OR FALSE

A
TRUE
82
Q
When examining the relationships of the five cycles and general cash, the cycles have no beginning
or end except at the origin or final disposition of the company.
TRUE OR FALSE

A
TRUE
85
Q
When an auditor is determining what information to include in the notes to the financial statements
relating to bonds payable, he is concerned with the transaction-related audit objectives.
TRUE OR FALSE

A
FALSE
86
Q
It is generally impractical for the auditor to obtain complete assurance about the correctness of each
class of transactions.
TRUE OR FALSE

A
TRUE
96
Q
Relevant assertions have a meaningful bearing on whether the account is fairly stated and are used
to assess the risk of material misstatement and the design and performance of audit procedures.
TRUE OR FALSE

A
TRUE
97
Q
The auditor’s audit objectives follow and are closely related to management assertions.
TRUE OR FALSE

A
TRUE
102
Q
General transaction-related audit objectives vary from audit to audit, depending on the nature and
characteristics of the client’s business and industry.
TRUE OR FALSE

A
FALSE
103
Q
The audit objective of posting and summarization is associated with the management assertion of
accuracy.
TRUE OR FALSE
A
TRUE
104
Q
The transaction-related audit objective of timing is related to the assertion of cutoff.
TRUE OR FALSE

A
TRUE
105
Q
If a sale was for a valid shipment, but the amount of the sales invoice was calculated incorrectly, the
accuracy objective was violated.
TRUE OR FALSE

A
TRUE
106
Q
The effect of a violation of the completeness transaction-related audit objective for cash
disbursements transactions would be an overstatement of cash disbursements.
TRUE OR FALSE

A
FALSE
107
Q
The transaction-related audit objective that deals with whether recorded transactions have actually
occurred is the completeness objective.
TRUE OR FALSE

A
FALSE
115
Q
Balance-related audit objectives follow from management assertions.
TRUE OR FALSE

A
TRUE
116
Q
Balance-related audit objectives are usually applied to the ending balance in income statement
accounts; transaction-related audit objectives are usually applied to transactions reflected in balance
sheet accounts.
TRUE OR FALSE

A
FALSE
117
Q
Tests of details of balances typically involve the use of comparisons and relationships to assess the
overall reasonableness of account balances.
TRUE OR FALSE

A
FALSE
118
Q
The general balance-related audit objective that deals with determining that details in the account
balance agree with related master file amounts, foot to the total in the account balance, and agree
with the total in the general ledger is the detail tie-in objective.
TRUE OR FALSE

A
TRUE
119
Q
The cutoff objective, “transactions near the balance sheet date are recorded in the proper period,” is
a balance-related audit objective.
TRUE OR FALSE

A
TRUE
120
Q
The presentation and disclosure-related audit objectives are identical to the management assertions
for presentation and disclosure.
TRUE OR FALSE

A
TRUE
129
Q
When an auditor has reduced assessed control risk based on tests of controls, he or she may then
reduce the extent to which the accuracy of the financial statement information directly related to
those controls must be supported through the accumulation of evidence using substantive tests.
TRUE OR FALSE

A
TRUE
130
Q
For a private company audit, tests of controls are normally performed only on those internal
controls the auditor believes have not been operating effectively during the period under audit.
TRUE OR FALSE

A
FALSE
131
Q
Rights and obligations is the only balance-related assertion without a similar transaction-related
assertion.
TRUE OR FALSE

A
TRUE
132
Q
The audit objectives are the well-defined methodology for organizing an audit to ensure that the
evidence gathered is sufficient and appropriate.
TRUE OR FALSE

A
FALSE
The audit objectives are the overall goals and purposes of the audit, which are defined by the
auditor based on the specific circumstances of the engagement.
133
Q
Obtaining an understanding of the entity and its environment is part of the analytical procedures
phase of the audit.
TRUE OR FALSE

A
FALSE
The statement is False. Obtaining an understanding of the entity and its environment is part of the
planning phase of the audit
134
Q
An auditor assesses the risk of material misstatement to determine the impact on the audit plan and
to determine the nature, extent, and timing of the audit procedures.
TRUE OR FALSE