Question 1

An independent audit adds value to the communication of financial information because the audit

Accepted Answer

lends credibility to the financial statements.

Question 2

Which of the following best describes the reason why an independent auditor is often retained to report on financial statements?

Accepted Answer

Different interests may exist between the entity preparing the statements and the persons using the statements, and thus outside assurance is needed to enhance the credibility of the statements.

Question 3

Which of the following best describes relationships among auditing, attest, and assurance services?

Accepted Answer

Auditing is a type of assurance service.

Question 4

Which of the following statements relating to attest and assurance services is not correct?

Accepted Answer

Financial statement auditing is a form of attest service but it is not an assurance service.

Question 5

The basic definition of auditing essentially indicates that, overall, auditing is a process to:

Accepted Answer

objectively obtain and evaluate evidence regarding assertions made by another party.

Question 6

In the context of agency theory, information asymmetry refers to the idea that:

Accepted Answer

management has more information about the entity’s true financial results and position than do the absentee owners (i.e. stockholders).

Question 7

Which of the following best describes the fundamental, underlying reason for why there is demand for an independent auditor to report on financial statements?

Accepted Answer

Different interests may exist between the company preparing the statements and the parties using the statements.

Question 8

Which of the following best describes why publicly-traded companies follow the practice of having the external auditor appointed by the audit committee and ratified by the stockholders?

Accepted Answer

to comply with requirements set forth by the Sarbanes-Oxley Act of 2002 and to enhance auditor independence from the management of the corporation

Question 9

Auditing can be defined as a “systematic process of objectively obtaining and evaluating evidence regarding assertions...” What is meant by “systematic process” in this definition?

Accepted Answer

There should be a well-planned approach for obtaining and evaluating evidence that is relevant and reliable for each particular audit engagement.

Question 10

Which of the following would best be described as an assurance service?

Accepted Answer

offering an opinion concerning the validity of statements made on an entity’s website relating to its online privacy policies

Question 11

Which of the following statements is not true with respect to assurance, attest, and audit services?

Accepted Answer

These services are applied only to financial statements and financial statement accounts.

Question 12

The auditor's report is generally addressed to the:

Accepted Answer

stockholders of the company.

Question 13

Independent auditing can best be described as

Accepted Answer

A discipline that provides assurance regarding the results of accounting and other functional operations and data.

Question 14

Which of the following best describes the primary reason an independent auditor reports on financial statements?

Accepted Answer

To add credibility, where appropriate, since management may not be perceived as objective with respect to its own financial statements.

Question 15

Financial statement users’ demand for assurance is similar to that of a potential home buyer who hires a home inspector in that

Accepted Answer

There are often information asymmetry and conflicts of interest.

Audit Exam 1 ch 1

Audit Exam 1

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