ACCT 431 Ch 1 Intro

Why do auditors generally use a sampling approach to evidence gathering? 

• Auditors are experts and do not need to look at much to know whether the financial statements are correct or not.
• 
  Auditors must balance the cost of the audit with the need for precision.
• 
  Auditors must limit their exposure to their auditee to maintain independence.
• The auditor's relationship with the auditee is generally adversarial, so the auditor will not have access to all of the financial information of the company.

The basic purpose of a financial statement audit is to 

• Detect fraud.
• 
  Examine individual transactions so that the auditor may certify as to their validity.
• .  Provide assurance regarding whether the auditee's financial statements are fairly stated.
• Assure the consistent application of correct accounting procedures.

Assurance services may improve all of the following except 

• Relevance.
• Credibility.
• Periodicity.
• Reliability.

Evidence is reliable if it 

•     Signals the true state of a management assertion.
• Applies to the period being audited.
• Relates to the audit assertion being tested.
• Is consistent with management's assertions.

For publicly-held companies, which of the following is integrated into the audit of financial statements? 

•     Budgetary information audit.
• The audit of internal controls.
• Audit of management forecasts.
• Audit of interim financial statements.

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

• Information can vary in its reliability
• Information can vary in its relevance.
• Management has more information about the entity's true financial position than do the absentee owners (i.e. stockholders).
• Management likely will not act in the best interests of the absentee owners.

The auditor's report is generally addressed to the 

• Chief operating officer.
• Securities and Exchange Commission
• Stockholders of the company
• Chief financial officer

Which of the following is true with respect to the auditor's report? 

• The report indicates that the company's financial statements were audited in accordance with generally accepted accounting standards.
• The report indicates that the company's financial statements were audited in accordance with applicable auditing standards.
• The report indicates that the company's financial statements were audited in accordance with the auditor's best judgment.
• The report indicates that the company's financial statements were audited in accordance with statements issued by the FASB.