Auditing Unit 3

Auditing focuses on rules, techniques, and computations required to prepare and analyze financial information

False

Decision makers demand reliable information that is provided by accountants and accounting information systems

True

Information asymmetry seldom occurs

False

Conflicts of interest often occur between absentee owners (principals) and managers (agents)

True

Auditing services and attestation services are exactly the same thing

False

Auditing is a type of attest service

True

Testing all transactions that occurred during the period is cost prohibitive in the absence of computer data analytic approaches

True

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

A) Auditors are experts and do not need to look at much to know whether the financial statements are correct or not.

B) Auditors must balance the cost of the audit with the need for precision and for some types of evidence, computer data analytic approaches can't be used.

C) Auditors must limit their exposure to their auditee to maintain independence.

D) 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.

B) Auditors must balance the cost of the audit with the need for precision and for some types of evidence, computer data analytic approaches can't be used

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

A) If materiality increases, so will the sample size.

B) If the desired level of assurance increases, sample sizes can be smaller.

C) If materiality decreases, sample size will need to increase.

D) There is no relationship between sample size and materiality or the desired level of assurance.

C) If materiality decreases, sample size will need to increase.

Which of the following statements about the study of auditing is NOT true?

A) The study of auditing can be valuable to future accountants and business decision makers whether or not they plan to become auditors.

B) The study of auditing focuses on learning the analytical and logical skills necessary to evaluate the relevance and reliability of information.

C) The study of auditing focuses on learning the rules, techniques, and computations required to analyze financial statements for making investment recommendations.

D) The study of auditing begins with the understanding of a coherent logical framework and techniques useful for gathering and analyzing evidence about others' assertions.

C) The study of auditing focuses on learning the rules, techniques, and computations required to analyze financial statements for making investment recommendations.

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

A) detect fraud.

B) examine individual transactions so that the auditor may certify as to their validity.

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

D) assure the consistent application of correct accounting procedures.

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

Assurance services may improve all of the following except:

A) relevance.

B) credibility.

C) periodicity.

D) reliability.

C) periodicity.

Evidence is reliable if it:

A) signals the true state of a management assertion.

B) applies to the period being audited.

C) relates to the audit assertion being tested.

D) is sufficient to justify a conclusion.

A) signals the true state of a management assertion.

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

A) The risk of the auditor being sued because of association with an auditee.

B) The risk that the auditor will provide an inappropriate opinion on financial statements that are, in fact, materially misstated.

C) The overall risk that a material misstatement exists in the financial statements.

D) The risk that auditors use audit procedures that are inappropriate.

B) The risk that the auditor will provide an inappropriate opinion on financial statements that are, in fact, materially misstated.

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

A) engage financial experts familiar with the nature of the business entity.

B) obtain a knowledge of matters that relate to the nature of the entity's business and the industry in which it operates.

C) refer a substantial portion of the audit to another CPA, who will act as the principal auditor.

D) first inform management that an unqualified opinion cannot be issued.

B) obtain a knowledge of matters that relate to the nature of the entity's business and the industry in which it operates.

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

A) budgetary information audit

B) the audit of internal controls

C) audit of management forecasts

D) audit of interim financial statements

B) the audit of internal controls

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

A) identify specific internal control activities that are likely to prevent fraud.

B) evaluate the reasonableness of the company's accounting estimates.

C) evaluate the integrity of management.

D) inquire of the company's attorney as to whether any unrecorded claims are probable or asserted.

C) evaluate the integrity of management.

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

A) information can vary in its reliability.

B) information can vary in its relevance.

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

D) management likely will not act in the best interests of the absentee owners.

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

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

A) 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.

B) 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.

D) 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.

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.

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) A management fraud may exist and it is more likely to be detected by auditors if they are independent.

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

C) A misstatement of account balances may exist and it is the independent auditor's responsibility to ensure that financial statements are not misstated.

D) A poorly designed internal control system may be in place.

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

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?

A) to promote an adversarial relationship between the auditor and the corporation's management

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

C) to encourage a policy of rotation of the independent auditors

D) to give management more leverage over the auditor's decisions

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

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?

A) All audits involve obtaining the same evidence.

B) All audits involve evaluating evidence in the same manner.

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

D) All assertions are equally important for all audits.

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

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

A) preparing a report representing a client's position during an IRS audit

B) working with a company to develop a more efficient method of processing financial transactions

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

D) assisting a company in identifying potential sources of capital for potential acquisitions

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

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

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

B) These services all involve obtaining and evaluating evidence.

C) These services all involve determining the correspondence of some information to a set of criteria.

D) These services all involve issuing a report.

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

Auditors are most likely to use the most rigorous audit procedures to examine:

A) routine transactions.

B) management assertions that are deemed to be of low risk in a particular engagement.

C) only the rights and obligations assertion.

D) management assertions that are deemed to be of high risk in a particular engagement

D) management assertions that are deemed to be of high risk in a particular engagement

When obtaining an understanding of the entity and its environment, the auditor should obtain an understanding of internal controls primarily to:

A) identify areas of relatively high risk of misstatement and plan the audit accordingly.

B) provide suggestions for improvement to the company.

C) serve as a basis for setting audit risk and materiality.

D) decide whether to perform an audit for the company.

A) identify areas of relatively high risk of misstatement and plan the audit accordingly.

Which one of the following statements best describes the concept of materiality?

A) Materiality is determined by reference to specific quantitative guidelines established by the AICPA.

B) Materiality depends only on the dollar amount of an item relative to other items in the financial statements.

C) Materiality depends on the nature of an item but not on the dollar amount of the item.

D) Materiality is largely a matter of professional judgment and reflects both quantitative and qualitative considerations.

D) Materiality is largely a matter of professional judgment and reflects both quantitative and qualitative considerations.

Before accepting an engagement to audit a new entity, an auditor is required to:

A) make inquiries of the predecessor auditor.

B) tell the company whether or not the auditor is willing to issue a "clean" opinion.

C) prepare a memorandum setting forth the staffing requirements and documenting the preliminary audit plan.

D) become a member of the entity's board of directors.

A) make inquiries of the predecessor auditor.

An investor is reading the financial statements of the Peres Corporation and observes that the statements are accompanied by an auditor's unqualified report. From this, the investor may conclude that:

A) any disputes over whether Peres' financial statements are fairly stated in accordance with GAAP have been settled to the auditor's satisfaction.

B) the auditor is satisfied that Peres will be highly profitable in the future.

C) the auditor is certain that Peres' financial statements have been prepared accurately and that all account balances are precisely correct.

D) the auditor has determined that Peres' management is not qualified to lead the company.

A) any disputes over whether Peres' financial statements are fairly stated in accordance with GAAP have been settled to the auditor's satisfaction.

Preliminary engagement activities include:

A) evaluating internal controls.

B) assessing audit risk at the account balance level.

C) setting materiality.

D) performing background checks on top management.

D) performing background checks on top management.

The auditor's report is generally addressed to the:

A) chief operating officer.

B) securities and exchange commission.

C) stockholders of the company.

D) chief financial officer.

C) stockholders of the company.

An auditor would issue an adverse opinion if:

A) the auditor encounters adverse attitudes toward the auditor on the part of company management.

B) a qualified opinion cannot be given because the auditor is not qualified to do so.

C) an immaterial misstatement is present.

D) the financial statements taken as a whole do not fairly present the financial condition and results of operations of the company.

D) the financial statements taken as a whole do not fairly present the financial condition and results of operations of the company.

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

A) The report indicates that the company's financial statements were audited in accordance with generally accepted accounting standards.

B) The report indicates that the company's financial statements were audited in accordance with applicable auditing standards.

C) The report indicates that the company's financial statements were audited in accordance with the auditor's best judgment.

D) The report indicates that the company's financial statements were audited in accordance with statements issued by the FASB.

B) The report indicates that the company's financial statements were audited in accordance with applicable auditing standards.

Which of the following is not a concept that is included in the audit report in the paragraph on the auditor's responsibilities?

A) The conformance of the financial statements with generally accepted accounting principles.

B) The audit was conducted in accordance with applicable auditing standards.

C) The audit was planned and performed to obtain reasonable, rather than absolute, assurance.

D) A description of when misstatements are considered material.

A) The conformance of the financial statements with generally accepted accounting principles.

Which of the following is not a benefit of emerging audit technologies?

A) automate much of the more tedious work that auditors perform

B) the potential to dramatically enhance the effectiveness and the value of the external audit

C) leave more time for auditors to better understand the businesses they are auditing and the underlying risks related to financial reporting

D) remove the challenge of junior auditor work and make that work less interesting

D) remove the challenge of junior auditor work and make that work less interesting

Information Risk is defined as:

A) the risk that information conveyed by a company's management will be false, inaccurate, or misleading.

B) the risk that an assertion contains a misstatement, before considering internal controls.

C) the risk that the auditor has followed appropriate auditing standards and issued a standard unqualified opinion, and the financial statements contain a material misstatement.

D) the risk that the internal controls will not prevent or detect a misstatement in the financial statements.

A) the risk that information conveyed by a company's management will be false, inaccurate, or misleading.

A series of business and related auditing failures led to the passage of the Sarbanes-Oxley Act (2002)

True

The primary audit context with which an auditor is concerned is the auditee's industry or business

True

The audit committee generally includes senior executives of the organization

False

A financial statement audit is generally organized based on the five basic business processes or cycles

True

One of the five basic business processes is the warehousing cycle

False

The ASB's auditing standards contain a preface that includes Principles Underlying an Audit Conducted in Accordance with GAAS

True

PCAOB auditing standards must be followed on all financial statement audits performed in the U.S.

False

A financial statement audit must be conducted in accordance with GAAP

False

Generally, the financial statements of U.S. companies must be prepared in accordance with GAAP

True

PCAOB auditing standards must be followed on all audits of public companies' financial statements

True

The Audit Committee consists of:

A) members of management.

B) a subcommittee of the AICPA who establish the SAS.

C) members of the Board of Directors.

D) appointed government overseers.

C) members of the Board of Directors.

What organization is responsible for setting auditing standards for audits of publicly traded companies in the U.S.?

A) AICPA

B) FASB

C) GASB

D) PCAOB

D) PCAOB

The Public Company Accounting Oversight Board's role is to:

A) conduct the final review of auditors' work before the auditor's opinion is issued.

B) oversee the auditors of public companies in order to protect the interests of investors.

C) conduct audits of governmental entities.

D) sanction auditors who fail to follow GAAS.

B) oversee the auditors of public companies in order to protect the interests of investors.

The authoritative body empowered to promulgate standards concerning a CPA's association with audited financial statements of an entity that is required to file financial statements with the SEC is the:

A) financial accounting standards board.

B) government accountability office.

C) public company accounting oversight board.

D) auditing standards board.

C) public company accounting oversight board.

The auditor must be independent of the auditee unless:

A) the lack of independence does not influence his or her professional judgment.

B) both parties agree that the independence issue is not a problem.

C) the lack of independence is insignificant.

D) none of the above—the auditor cannot lack independence.

D) none of the above—the auditor cannot lack independence.

Which principle of the Principles Underlying an Audit Conducted in Accordance with GAAS describes where auditors are required to plan the work and properly supervise any assistants?

A) purpose of an Audit and Premise upon which an Audit is Conducted

B) performance

C) reporting

D) responsibilities

D) responsibilities

Which of the following best describes the general character of the three principles that are listed in the Performance section of the Principles Underlying an Audit Conducted in Accordance with GAAS?

A) the purpose and value of a financial statement audit and lays out the responsibilities of management for an effective audit to be possible

B) the fundamental responsibilities and characteristics of an auditor

C) auditors' responsibilities in performing an effective audit

D) auditors provide a written report that expresses their opinion about the financial statements

C) auditors' responsibilities in performing an effective audit

The Responsibilities section of the Principles Underlying an Audit Conducted in Accordance with GAAS states that auditors are responsible for having appropriate competence and:

A) independence with respect to the financial statements and supplementary disclosures.

B) exercising professional care as judged by peer reviewers.

C) capabilities to perform the audit.

D) objectivity as an auditor as verified by proper supervision.

C) capabilities to perform the audit.

The Reporting section of the Principles Underlying an Audit Conducted in Accordance with GAAS requires that the report, "states whether the financial statements are presented fairly, in all material respects, in accordance with the applicable financial reporting framework." This passage requires:

A) a statement of fact by the auditor.

B) an opinion by the auditor.

C) an implied measure of fairness.

D) an objective measure of compliance.

B) an opinion by the auditor.

Because of the risk of material misstatement, an audit of financial statements in accordance with generally accepted auditing standards should be planned and performed with an attitude of:

A) objective cynicism.

B) independent differentialism.

C) professional skepticism.

D) impartial conservatism.

C) professional skepticism.

The accuracy of information included in notes accompanying the audited financial statements issued by a company whose shares are traded on a stock exchange is the primary responsibility of:

A) the stock exchange officials.

B) the independent auditor.

C) the company's management.

D) the Securities and Exchange Commission.

C) the company's management.

The primary responsibility for the adequacy of disclosures in the financial statements of a publicly held company rests with the:

A) partner assigned to the audit engagement.

B) management of the company.

C) auditor in charge of the fieldwork.

D) securities and exchange commission.

B) management of the company.

The largest public accounting firms typically are structured as:

A) subchapter S corporations.

B) professional corporations.

C) limited liability partnerships or limited liability companies.

D) limited liability corporations.

C) limited liability partnerships or limited liability companies.

Typically, an external auditor first gets supervisory experience at what level of authority?

A) associate

B) senior

C) manager

D) partner

B) senior

An "in-charge" auditor typically holds the rank of:

A) associate.

B) senior.

C) manager.

D) partner.

B) senior.

Which of the following best describes the concept of risk assessment on which auditors can provide independent assurance?

A) the risk that financial statements are misstated because of fraud

B) the risk that financial statements are misstated because of error or fraud

C) whether management has systems in place to identify, evaluate, and effectively manage the entity's business risks

D) developing client acceptance and continuance practices that minimize the likelihood of lawsuits against the auditor

C) whether management has systems in place to identify, evaluate, and effectively manage the entity's business risks

Fraud audits include all of the following except:

A) criminal investigations.

B) manufacturers' assertions about product quality.

C) employee fraud.

D) management fraud.

B) manufacturers' assertions about product quality.

A typical objective of an operational audit is for the auditor to:

A) determine whether the financial statements present fairly the entity's operations.

B) evaluate the feasibility of attaining the entity's operational objectives.

C) make recommendations for improving performance.

D) report on the entity's relative success in attaining profit maximization.

C) make recommendations for improving performance.

Governmental 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) monetary stimulus.

B) evaluation.

C) accuracy.

D) compliance.

D) compliance.

External auditors are referred to as "external" because:

A) they report to users outside of the audited entity.

B) they are paid by parties outside of the audited entity.

C) they are not employees of the entity being audited.

D) their offices are not at the entity's place of business.

C) they are not employees of the entity being audited.

Which is not an attribute of an external auditor?

A) independence

B) auditee advocacy

C) objectivity

D) concern for the public interest

B) auditee advocacy

What is the general character of the work conducted in performing a fraud audit for a company?

A) providing assurance that the financial statements are not materially misstated

B) detecting or deterring fraudulent activity

C) offering an opinion on the reliability of the specific assertions made by management

D) identifying the causes of an entity's financial difficulties

B) detecting or deterring fraudulent activity

Which of the following is NOT a requirement of the Sarbanes-Oxley Act?

A) Audit firms cannot provide most types of nonaudit services to their public company auditees.

B) Audit firms are required to rotate audit partners off audit engagements every five years for public company audits.

C) Firms that audit public companies are subject to inspection by the PCAOB.

D) A certain number of hours, which is based on the size of the company being audited, must be spent on each audit engagement.

D) A certain number of hours, which is based on the size of the company being audited, must be spent on each audit engagement.

A CPA is most likely to refer to one or more of the items listed in the Responsibilities section of the Principles Underlying an Audit Conducted in Accordance with GAAS in determining:

A) the nature of the CPA's report qualification.

B) the scope of the CPA's auditing procedures.

C) requirements for the review of the entity and its environment.

D) whether the CPA should undertake an audit engagement.

D) whether the CPA should undertake an audit engagement.

Who bears ultimate responsibility for the financial statements?

A) management of the organization, equally with the external auditor that audits the statements

B) management and the shareholders of the organization

C) the external auditor that audits the statements

D) management of the organization

D) management of the organization

The Responsibilities section of the Principles Underlying an Audit Conducted in Accordance with GAAS is concerned with:

A) proper planning and supervision, appropriate materiality levels, and sufficient appropriate audit evidence.

B) an audit opinion in accordance with the auditor's findings, whether the financial statements are presented fairly, and whether the financial statements are in accordance with the applicable financial reporting framework.

C) whether the auditor has unrestricted access to those within the entity from whom the auditor needs to obtain audit evidence.

D) complying with ethical requirements, possessing appropriate competence to perform the audit, and maintaining professional skepticism.

D) complying with ethical requirements, possessing appropriate competence to perform the audit, and maintaining professional skepticism.

The Responsibilities section of Principles Underlying an Audit Conducted in Accordance with GAAS recognizes that regardless of how capable an individual may be in other fields, the individual cannot meet the requirements of the auditing standards without the proper:

A) business and finance courses.

B) quality control and peer review.

C) competence in auditing and ability to exercise professional skepticism.

D) supervision and review skills.

C) competence in auditing and ability to exercise professional skepticism.

The main difference between SAS and AU-C is:

A) they are the same except that SAS are organized chronologically and the AU-C are organized by topical area.

B) SAS are issued by the ASB and AU-C are issued by the PCAOB.

C) SAS are issued by the PCAOB and AU-C are issued by the ASB.

D) SAS define minimum standards of performance for auditors while AU-C define financial accounting principles that must be followed according to GAAP.

A) they are the same except that SAS are organized chronologically and the AU-C are organized by topical area.

The AICPA's Statements on Auditing Standards can be described as:

A) providing very specific guidance about the specific activities an auditor must perform on each engagement.

B) similar to financial accounting standards in that they are developed by the government.

C) tend to be general in nature and require a great deal of professional judgment.

D) providing assurance that an auditor will not issue an incorrect opinion.

C) tend to be general in nature and require a great deal of professional judgment.

Due professional care requires auditors to:

A) obtain independent, third party (non-auditee) documentation as evidence for all information presented in the financial statements.

B) exercise professional skepticism during the audit.

C) disregard any evidence generated by the auditee during the audit.

D) find every error contained in the financial statements prepared by management.

B) exercise professional skepticism during the audit.

The objectives of the Reporting section of Principles Underlying an Audit Conducted in Accordance with GAAS are to provide assurance and include all of the following except for:

A) an opinion statement of whether the financial statements present fairly.

B) an opinion statement of whether the financials are free of material misstatements.

C) an opinion statement of whether the financials are in accordance with an applicable financial reporting framework.

D) an opinion statement of whether internal controls over financial reporting are effective.

D) an opinion statement of whether internal controls over financial reporting are effective.

An internal auditor is likely to be more concerned with ________________ than the external auditor.

A) internal administrative procedures affecting the control environment

B) financial accounting procedures

C) the efficiency of operations

D) internal control effectiveness

C) the efficiency of operations

Which of the following is not included in the broad category of assurance services?

A) operational audit

B) reporting on internal control

C) accounting or review services

D) evaluation of the auditee's risk management framework

C) accounting or review services

Which of the following is not explicitly a part of the IIA's definition of internal auditing?

A) Internal auditing is an objective assurance activity.

B) Internal auditing is a consulting activity.

C) Internal auditing should help an organization accomplish its objectives.

D) Internal auditors should help external auditors complete the annual financial statement audit.

D) Internal auditors should help external auditors complete the annual financial statement audit.

Which of the following statements regarding the PCAOB is incorrect?

A) It is a public-sector, nonprofit corporation.

B) It is overseen by the SEC.

C) It sets standards for public company audits.

D) It has delegated all of its standard-setting authority to the AICPA.

D) It has delegated all of its standard-setting authority to the AICPA.

Due professional care requires:

A) auditors to maintain an attitude that includes a questioning mind and a critical assessment of audit evidence.

B) the examination of all available corroborating evidence.

C) the exercise of error-free judgment.

D) a study and review of internal controls that includes tests of controls.

A) auditors to maintain an attitude that includes a questioning mind and a critical assessment of audit evidence.

Which of the following best describes the role of corporate governance?

A) Management decides which accounting principles are the most appropriate.

B) Shareholders vote to decide who should be members of the board of directors.

C) Management is accountable to shareholders and other constituents for the utilization of the entity's resources.

D) Management often is compensated based on the company's profitability.

C) Management is accountable to shareholders and other constituents for the utilization of the entity's resources.

The Performance section of Principles Underlying an Audit Conducted in Accordance with GAAS states that the auditor is unable to obtain absolute assurance that the financials are free of material misstatements because of inherent limitations which arise from all of the following except:

A) the presentation of the financial statements based on GAAS.

B) the nature of financial reporting.

C) the nature of audit procedures.

D) the need for the audit to be conducted within a reasonable period of time and so as to achieve a balance between benefit and cost.

A) the presentation of the financial statements based on GAAS.

Which of the following best describes what is meant by generally accepted auditing standards?

A) audit assertions generally determined on audit engagements

B) acts to be performed by the auditor

C) standards of quality for the auditor's performance

D) procedures to be used to gather evidence to support financial statements

C) standards of quality for the auditor's performance

The 'Purpose of an Audit and Premise upon which an Audit is Conducted' section of Principles Underlying an Audit Conducted in Accordance with GAAS states that management is responsible for all the following except for:

A) the preparation and fair presentation of the financial statements in accordance with the applicable financial reporting framework.

B) the design, implementation, and maintenance of internal control.

C) providing financial statement users with an opinion on whether the financial statements present fairly.

D) ensuring that the financial statements are free from material misstatement, whether due to error or fraud.

C) providing financial statement users with an opinion on whether the financial statements present fairly.

The Performance section of Principles Underlying an Audit Conducted in Accordance with GAAS states that for auditors to obtain reasonable assurance, they need to do all of the following except:

A) make sure all audit team members have adequate training.

B) obtain sufficient appropriate audit evidence.

C) identify and assesses risks of material misstatement.

D) determine and applies appropriate materiality levels.

A) make sure all audit team members have adequate training.

The Reporting section of Principles Underlying an Audit Conducted in Accordance with GAAS requires the auditor's report to contain either an expression of opinion regarding the financial statements taken as a whole or an assertion to the effect that an opinion cannot be expressed. The objective of this requirement is to prevent:

A) an auditor from reporting on one basic financial statement and not the others.

B) an auditor from expressing different opinions on each of the basic financial statements.

C) management from reducing its final responsibility for the basic financial statements.

D) misinterpretations regarding the degree of responsibility the auditor is assuming.

D) misinterpretations regarding the degree of responsibility the auditor is assuming.

The Performance section of the Principles Underlying an Audit Conducted in Accordance with GAAS is concerned with:

A) proper planning and supervision, appropriate materiality levels, and sufficient appropriate audit evidence.

B) an audit opinion in accordance with the auditor's findings, whether the financials are presented fairly, and whether the financial are in accordance with the applicable financial reporting framework.

C) whether the auditor has unrestricted access to those within the entity from whom the auditor needs to obtain audit evidence.

D) complying with ethical requirement, appropriate competence and maintaining professional skepticism.

A) proper planning and supervision, appropriate materiality levels, and sufficient appropriate audit evidence.

The Reporting section of the Principles Underlying an Audit Conducted in Accordance with GAAS is concerned with:

A) proper planning and supervision, appropriate materiality levels, and sufficient appropriate audit evidence.

B) the auditor expressing an audit opinion in accordance with the auditor's findings, whether the financials are presented fairly, and whether the financial are in accordance with the applicable financial reporting framework.

C) whether the auditor has unrestricted access to those within the entity from whom the auditor needs to obtain audit evidence.

D) complying with ethical requirements, appropriate competence and maintaining professional skepticism.

B) the auditor expressing an audit opinion in accordance with the auditor's findings, whether the financials are presented fairly, and whether the financial are in accordance with the applicable financial reporting framework.

The first phase of audit planning is risk assessment

False

When the prospective client has previously been audited, auditing standards require that the successor auditor make certain inquiries of the predecessor auditor before accepting the engagement

True

With few exceptions, the Code of Professional Conduct does not allow an auditor to disclose confidential client information without the client's consent

True

If the prospective client refuses to allow the predecessor auditor to communicate with the successor auditor, the successor auditor should have reservations about accepting the client

True

In order to properly preplan the audit, the auditor must determine the engagement team requirements and ensure the independence of the audit team and audit firm

True

If the internal audit function is competent and objective, the auditor may generally rely on the work of an internal audit function in certain areas to reduce the amount of external audit work in these areas

True

All companies must have an audit committee

False

The audit committee is directly responsible for the appointment, compensation, and oversight of the work of any accounting firm employed by a public company

True

The external auditor is required to make a number of important communications to the audit committee during or at the end of the audit engagement

True

The engagement partner is typically responsible for doing the detailed audit testing

False