Which of the following is the most appropriate definition of the external audit?

• The external audit is an exercise carried out by auditors in order to give an opinion on whether the financial statements of a company are materially misstated.

• The external audit is an exercise carried out in order to give an opinion on the effectiveness of a company's internal control system.

• The external audit is performed by management to identify areas of deficiency within a company and to make recommendations to mitigate those deficiencies.

• The external audit provides negative assurance on the truth and fairness of a company's financial statements

Is the following statement regarding stewardship true or false? Directors are stewards of the investment made by shareholders in a company.

• True

• False

Which two of the following are elements of an assurance engagement?

• (1) A three-party relationship

• (2) Suitable criteria

• (3) Determination of materiality

• (4) An engagement letter

Who normally appoints the external auditors of a company?

• Directors

• Shareholders

• Audit committee

• Senior management

The level of assurance provided by an external audit is absolute. Is this statement true or false?

• True

• False

Limited assurance engagements give what sort of assurance?

• Moderate

• Low

Which of the following is NOT the element of assurance service?

• Sufficient appropriate audit evidence

• Suitable criteria

• A written report in the appropriate form

• A three party relationship consisting of the responsible party, users, and subject matter

Which of the following is NOT a level of assurance provided by an assurance engagement?

• Absolute assurance

• Negative assurance

• Limited assurance

• Reasonable assurance

The following conclusions have been reported on two engagements: “The insurance claim presents a true and fair estimate of the amount of inventory lost in the warehouse fire” “The cash flow forecast contains no assumptions that appear unreasonable” Which of the following describes the level of assurance expressed in these conclusions:

• (1) negative assurance; (2) No assurance

• (1) Positive assurance; (2) No assurance

• (1) negative assurance; (2) Negative assurance

• (1) Positive assurance; (2) Negative assurance

The level of assurance given by an assurance engagement will depend on the type of engagement. Assurance levels are often described as being either: 1. Absolute 2. Reasonable 3. Limited 4-Zero What level of assurance would normally be given to an audit of financial statements?

• 1

• 2

• 3

• 4