Copyright 2018 McGraw-Hill

1 Copyright © 2018 McGraw-Hill Auditing & Assurance Services, 7e (Louwers) Chapter 2 Professional Standards 1) Control risk is

• the probability that a material misstatement could not be prevented or detected by the entity's

internal control policies and procedures.

• the probability that a material misstatement could occur and not be detected by auditors'

procedures.

• the risk that auditors will not be able to complete the audit on a timely basis.
• the risk that auditors will not properly control the staff on the audit engagement.

2) The responsibilities principle under generally accepted auditing standards does not include which of the following?

• Competence and capabilities
• Independent attitude
• Due care
• Planning and supervision

3) Which of the following types of auditors' reports does not require an additional paragraph to support the opinion?

• Unmodified opinion
• Adverse opinion
• Qualified opinion
• Disclaimer of opinion

4) Which of the following is an element of a system of quality control that should be considered by a public accounting firm in establishing its quality control policies and procedures?

• Lending credibility to a client's financial statements
• Using statistical sampling techniques
• Acceptance and continuance of client relationships and specific engagements
• Membership in the Center for Public Company Audit Firms

5) Which of the following presumptions does not relate to the reliability of audit evidence?

• The more effective the client's internal control, the more assurance it provides about the

accounting data and financial statements.

• The auditors' opinion, to be economically useful, is formed within reasonable time and based

on evidence obtained at a reasonable cost.

• Evidence obtained from independent sources outside the entity is more reliable than evidence

secured solely within the entity.

• The independent auditors' direct personal knowledge, obtained through observation and

inspection, is of higher quality than information obtained indirectly.6) An important role of the Public Company Accounting Oversight Board is to oversee the

• issuance of statements by the Financial Accounting Standards Board.
• preparation and grading of the Uniform CPA Examination.
• peer review of member firms of the Private Companies Practice Section.
• regulation of firms that audit public entities.

Auditing and Assurance Services 7th Edition Louwers Test Bank Visit TestBankDeal.com to get complete for all chapters

2 Copyright © 2018 McGraw-Hill 7) Audit evidence is usually considered sufficient when

• it is reliable.
• there is enough quantity to afford a reasonable basis for an opinion on financial statements.
• it has the qualities of being relevant, objective, and free from unknown bias.
• it has been obtained through random selection methods.

8) Which of the following is not considered a type of audit evidence?

• The entity's trial balance
• Auditors' calculations
• Physical observation
• Verbal statements made by client personnel

9) An audit of the financial statements of Camden Corporation is being conducted by external

auditors. The external auditors are expected to:

• certify the correctness of Camden's financial statements.
• make a complete examination of Camden's records and verify all of Camden's transactions.
• give an opinion on the fair presentation of Camden's financial statements in conformity with

the applicable financial reporting framework (e.g., GAAP, IFRS).

• give an opinion on the attractiveness of Camden for investment purposes and critique the

wisdom and legality of its business decisions.

10) Auditors try to achieve independence in appearance in order to:

• maintain public confidence in the profession.
• become independent in fact.
• comply with the responsibilities principle.
• maintain an unbiased mental attitude.

11) The preparation of an audit plan prior to the beginning of field work is appropriately considered documentation of

• planning.
• supervision.
• information evaluation.
• quality assurance.

12) Which of the following procedures would provide the most reliable audit evidence?

• Inquiries of the client's accounting staff held in private
• Inspection of pre-numbered client shipping documents
• Inspection of bank statements obtained directly from the client's financial institution
• Analytical procedures performed by auditors on the client's trial balance

3 Copyright © 2018 McGraw-Hill 13) Which of the following would most likely be a violation of the independence requirement found in the responsibilities principle under generally accepted auditing standards?

• An auditor on the engagement has a distant relative who is employed by a vendor that does a

significant amount of business with clients.

• The client's Chief Executive Officer graduated from the same university as the partner in

charge of the accounting firm.

• An auditor on the engagement owns a financial interest in the stock of the client.
• The client provides financial support to a number of charitable causes that also receive

support from the accounting firm.14) A vendor's invoice received and held by the client would be considered what type of evidence?

• External
• Internal
• External-internal
• Written representation

15) Which of the following statements is generally correct about the appropriateness of audit evidence?

• Auditors' direct personal knowledge, obtained through observation and inspection, is of

higher quality than information obtained indirectly from independent outside sources.

• To be reliable, audit evidence must be either valid or relevant, but need not be both.
• Client accounting data alone may be considered sufficient appropriate audit evidence to issue

an unmodified opinion on client financial statements.

• Appropriateness of audit evidence refers to the amount of corroborative evidence to be

obtained.16) The standard auditors' report refers to standards of the PCAOB and GAAP in which paragraph?

• Standards of the PCAOB: Scope only; GAAP: Opinion only
• Standards of the PCAOB: Introductory only; GAAP: Scope and opinion
• Standards of the PCAOB: Introductory and scope; GAAP: Opinion only
• Standards of the PCAOB: Introductory only; GAAP: All paragraphs

17) Which of the following is not included in the auditors' standard report representing an unmodified opinion?

• A brief indication of the responsibility of auditors and management for the financial

statements

• An indication that all appropriate disclosures have been made and included in the financial

statements

• An indication that the audit was conducted in accordance with standards established by the

PCAOB

• The auditors' opinion on the fairness of the financial statements

4 Copyright © 2018 McGraw-Hill 18) Internal evidence

• is obtained directly from third parties independent of the client.
• originates outside of the client's system but has been received and processed by the client.
• consists of documents that are produced, used, and stored within the client's information

system.

• consists of representations made by the client's officers, directors, owners, and employees.

19) Which of the following presumptions is correct about the reliability of audit evidence?

• Information obtained indirectly from outside sources is the most reliable form of audit

evidence.

• To be reliable, audit evidence should be convincing rather than persuasive.
• Reliability of audit evidence refers to the amount of corroborative evidence obtained.
• An effective system of internal control provides more assurance about the reliability of audit

evidence.20) The auditors' responsibility to express an opinion on the financial statements is

• implicitly represented in the auditors' standard report.
• explicitly represented in the introductory paragraph of the auditors' standard report.
• explicitly represented in the scope paragraph of the auditors' standard report.
• explicitly represented in the opinion paragraph of the auditors' standard report.

21) Which of the following is not a concept from the performance principle under generally accepted auditing standards?

• The auditor must plan the work and properly supervise any assistants.
• The auditor must express an opinion in accordance with the auditor's findings.
• The auditor must obtain sufficient appropriate evidence about whether material misstatements

exist.

• The auditor must determine and apply an appropriate materiality level throughout the audit.

22) Under generally accepted auditing standards, which of the following relates to the responsibilities principle?

• The initial planning of the audit engagement
• The confirmation of accounts receivable
• The completion of an internal control questionnaire
• Maintaining professional skepticism and exercising professional judgment

23) Which of the following represent audit quality guides that remain stable over time and are applicable for all audits?

• Auditing procedures
• Auditing standards
• Due care
• System of quality control