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Auditing A Practical Approach, 3rd Edition Moroney, Campbell, Hamilton Test Bank sample: Chapter 1: Introduction and overview of audit and assurance True/False 1.

The nature of audit procedures refers to the reliance on evidence provided by the client and its management.

*a. b.

True False

Correct answer: a Learning Objective 1.2 ~ Discriminate between different types of assurance services

2.

A compliance audit involves gathering evidence to ascertain whether the person or entity under review has followed the rules, policies, procedures, laws and regulations with which they must conform. *a. b.

True False

Correct answer: a Learning Objective 1.2 ~ Discriminate between different types of assurance services

3.

An operational audit is an example of a compliance audit. a. *b.

True False

Correct answer: b Learning Objective 1.2 ~ Discriminate between different types of assurance services

4.

The most common types of assurance engagements are financial report audits, confirmation audits, performance audits, comprehensive audits and assurance on corporate social responsibility (CSR) disclosures. a. *b.

True False

Correct answer: b Learning Objective 1.2 ~ Discriminate between different types of assurance services

5. the

An assurance engagement is performed by an auditor or consultant to enhance reliability of the subject matter. *a. b.

True False

Correct answer: a Learning Objective 1.2 ~ Discriminate between different types of assurance services

6. An audit of a financial report by the contracted auditors will give absolute assurance that the financial reports give a true and fair view of the financial performance of the entity. a. *b.

True False

Correct answer: b Learning Objective 1.3 ~ Discriminate between different levels of assurance 7. An audit engagement is performed by an Auditor to provide a reasonable assurance that the financial report gives a true and fair view of the business activities for the period. *a. b.

True False

Correct answer: a Learning Objective 1.3 ~ Discriminate between different levels of assurance

8.

A no assurance engagement is of little use as no assurance is given to the client. a. *b.

True False

Correct answer: b Learning Objective 1.3 ~ Discriminate between different levels of assurance

9.

An auditor can provide a reasonable level of assurance on information other than historical financial information. *a. b.

True False

Correct answer: a Learning Objective 1.3 ~ Discriminate between different levels of assurance

10.

A negative expression of opinion is only given when there is a disagreement with management and the auditor.

a. *b.

True False

Correct answer: b Learning Objective 1.3 ~ Discriminate between different levels of assurance

11.

A reasonable level of assurance is the highest level of assurance that an auditor can provide. *a. b.

True False

Correct answer: a Learning Objective 1.3 ~ Discriminate between different levels of assurance

12.

All modified audit reports are qualified audit opinions. a. *b.

True False

Correct answer: b Learning Objective 1.4 ~ Categorise different audit opinions

13.

It is the auditor’s responsibility to prepare the financial statements. a. *b.

True False

Correct answer: b Learning Objective 1.5 ~ Discriminate between the different role of the preparer and the auditor, and discuss the different firms that provide assurance services

. . . . . Multiple-choice questions 19.

An example of the three parties in an assurance engagement would be: *a. b. c.

audit client, supplier, auditor. audit client, employee, customer. auditor, general public, employees.

d.

auditor, shareholder, general public.

Correct answer: a Learning Objective 1.1 ~ Describe an assurance engagement

20.

An assurance engagement can be defined as a. *b. c. d. course of

an engagement of an expert to direct the entity on subject matter. an engagement to enhance the reliability of the subject matter. an audit to determine the validity of the subject matter. an engagement to determine a true and fair view of the entities actions.

Correct answer: b Learning Objective 1.1 ~ Describe an assurance engagement

21.

Which of the following is NOT true about Corporate Social Responsibility assurance? a. b. c. *d.

disclosures include environmental, employee and social reporting. includes both financial and non-financial information. reporting is voluntary and is becoming more widespread. is required to be performed by an auditor.

Correct answer: d Learning Objective 1.2 ~ Discriminate between different types of assurance services

22.

A limitation of an audit is caused by a. b. c. *d.

the need for the audit to be conducted within a reasonable period of time and at a reasonable cost. the nature of audit procedures. the nature of financial reporting. all of the above.

Correct answer: d Learning Objective 1.2 ~ Discriminate between different types of assurance services

23.

Which of the following would be an example of a reasonable assurance engagement? a.

the reporting of procedures performed by the auditor as agreed by the client.

*b. c. d.

the audit of annual financial statements. the review of annual financial statements. all of the above.

Correct answer: b Learning Objective 1.3 ~ Discriminate between the different levels of assurance

24. When auditors are engaged in work where no assurance is provided this means; *a. An assurance is not provided as the client determines the nature, timing and extent of the evidence that is gathered and will determine their own outcome. b. The auditors found anomalies in the financial information and no assurance will be given until further testing is conducted. c. That the review indicates adverse finding and the auditors are not prepared to give an assurance that the information gives a true and fair view. d. No assurance is provided as the client will determine the outcome once the auditors have gathered the correct data. Correct answer: a Learning Objective 1.3 ~ Discriminate between the different levels of assurance

25.

In a review engagement, which of the following is least likely to occur during the engagement? a. b. c. *d.

enquiries with management and other personnel. analytical procedures. review of the internal controls of the entity. substantive audit procedures.

Correct answer: d Learning Objective 1.3 ~ Discriminate between the different levels of assurance

26.

The wording of a negative expression of opinion generally states that: a. b. c.

there is something wrong with the subject matter. there is nothing wrong with the subject matter. there is something that has come to the auditor’s attention that would lead them to believe that the information being assured is not true and fair.

*d.

there is nothing that has come to the auditor’s attention that would lead them to believe that the information being assured is not true and fair.

Correct answer: d Learning Objective 1.4 ~ Categorise different audit opinions

27.

The following can be said about an emphasis of matter: a. b. c. *d.

it cannot be used when expressing audit opinion that has pervasive misstatements. it is only used in unqualified audit opinions. it is included when the auditors opinion has changed and the auditor wants to bring the users’ attention to a particular matter. it is included when the auditor’s opinion has not changed and the auditor wants to bring the users’ attention to a particular matter.

Correct answer: d Learning Objective 1.4 ~ Categorise different audit opinions

28.

Which of the following is not a type of opinion? *a. b. c. d.

modified opinion. qualified opinion. disclaimer of opinion. adverse opinion.

Correct answer: a Learning Objective 1.4 ~ Categorise different audit opinions

29.

An example of an unmodified audit opinion is: *a. b. c. d.

unqualified audit opinion with an emphasis of matter. adverse audit opinion. qualified audit opinion. none of the above.

Correct answer: a Learning Objective 1.4 ~ Categorise different audit opinions

30.

Which of the following is not true in relation to comparability? a.

able to assess performance of the entity over time and with other entities.

b. c. *d.

able to identify trends that may influence their perception of how well the entity is doing. able to evaluate. all of the above are correct.

Correct answer: d Learning Objective 1.5 ~ Discriminate between the different role of the preparer and the auditor, and discuss the different firms that provide assurance services

31.

In addition to the preparation of financial statements, it is also the responsibility of those charged with governance to: a. b. c. *d.

selecting and applying appropriate accounting policies and making reasonable accounting estimates. establish and maintain internal controls that are effective in preventing and detecting material misstatements. identify the financial reporting framework to be used in the preparation and presentation of their financial report. all of the above.

Correct answer: d Learning Objective 1.5 ~ Discriminate between the different role of the preparer and the auditor, and discuss the different firms that provide assurance services

32.

Professional scepticism does not involve: a. b. *c. d.

being suspicious when evidence contradicts documents held by their client or enquiries made of client personnel. seeking independent evidence to corroborate information provided by their client. the professional requirement that all management representations be substantiated with supporting documentation. none of the above.

Correct answer: c Learning Objective 1.5 ~ Discriminate between the different role of the preparer and the auditor, and discuss the different firms that provide assurance services