ACCT 431 Ch 1 (Medium)

Which of the following statements best describes a relationship between sample size and other elements of auditing? 

• If materiality increases, so will the sample size.
• 
  If the desired level of assurance increases, samplesizes can be smaller.
• If materiality decreases, sample size will need to increase.
• 
  There is no relationship between sample size and materiality or the desired level of assurance.

Which of the following best describes the concept of audit risk? 

•   The risk of the auditor being sued because of association with an auditee.
• The risk that the auditor will provide a "clean" opinion on financial statements that are, in fact, materially misstated
•   The overall risk that a material misstatement exists in the financial statements.
• The risk that auditors use audit procedures that are inappropriate.

An auditor who accepts an audit engagement and does not possess expertise with respect to the business entity's industry, should 

• Engage financial experts familiar with the nature of the business entity.
• 
  Obtain a knowledge of matters that relate to the nature of the entity's business.
• 
  Refer a substantial portion of the audit to another CPA, who will act as the principal auditor.
• First inform management that an unqualified opinion cannot be issued.

During the first phase of an audit, a CPA most likely would 

•     Identify specific internal control activities that are likely to prevent fraud.
•     Evaluate the reasonableness of the company's accounting estimates.
•     Evaluate the integrity of management.
• Inquire of the company's attorney as to whether any unrecorded claims are probable or asserted

Which of the following best describes why an independent auditor is asked to express an opinion on the fair presentation of financial statements? 

• It is difficult to prepare financial statements that fairly present a company's financial position and changes in cash flows without the expertise of an independent auditor.
• It is management's responsibility to seek available independent aid in the appraisal of the financial information shown in its financial statements
• C.  The opinion of an independent party is needed because a company is not likely to be considered objective with respect to its own financial statements.
• It is a customary courtesy that all stockholders of a company receive an independent report on management's stewardship in managing the affairs of the business

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

• A management fraud may exist and it is more likely to be detected by auditors if they are independent.
• Different interests may exist between the company preparing the statements and the parties using the statements
• A misstatement of account balances may exist and it is the independent auditor's responsibility to ensure that financial statements are not misstated
• A poorly designed internal control system may be in place

Which of the following best describes why publicly-traded corporations follow the practice of having the external auditor appointed by the board of directors or elected by the stockholders? 

• 
  To promote an adversarial relationship between the auditor and the corporation's management.
• To enhance auditor independence from the management of the corporation
•     To encourage a policy of rotation of the independent auditors.
• To give management more leverage over the auditor's decisions

Auditing is defined as a "systematic process of objectively obtaining and evaluating evidence regarding assertions..." What is meant by "systematic process"? 

• All audits involve obtaining the same eviden
•     All audits involve evaluating evidence in the same manner.
•     There should be a well-planned approach for obtaining and evaluating evidence.
• All assertions are equally important for all audits.

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

• Preparing a report representing a client's position during an IRS audit
• Working with a company to develop a more efficient method of processing financial transactions
• Offering an opinion concerning the accuracy of statements made on an entity's website relating to its online privacy policies
• 
  Assisting a company in identifying potential sources of capital for potential acquisitions.

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

• 
  These services are applied only to financial statements and financial statement accounts.
• These services all involve obtaining and evaluating evidence
• 
  These services all involve determining the correspondence of some information to a set of criteria.
• These services all involve issuing a report