Chapter 1-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


14. 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. 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.