Test Bank all Chapters

Auditing + Assurance A Business Risk Approach, 3e Christine Jubb

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Chapter 1: Assurance and auditing: Integral to the economy

TRUE/FALSE

1.The need for assurance services arises because the interests of the users of information may be different from that of the interests of those responsible for providing information.ANS:T PTS:1 DIF: Easy TOP:Need for assurance 2.An audit of financial statements is a form of attestation service.ANS:T PTS:1 DIF: Easy TOP:Auditing defined 3.Independence is an attribute necessary to perform assurance services.ANS:T PTS:1 DIF: Easy TOP:What is assurance?

4.A bank using Milton Company’s financial statements to determine the credit worthiness of a potential loan to Milton is a good example of the need for unbiased reporting.ANS:T PTS:1 DIF: Moderate TOP:The need for unbiased reporting 5.Independence is only required for assurance service providers.ANS:T PTS:1 DIF: Easy TOP:What is assurance?

6.A member of one of the professional accounting bodies automatically qualifies as an assurance provider in all areas of business.ANS:F PTS:1 DIF: Easy TOP:What is assurance?

7.Attestation services are a subset of assurance services and always involve a report that goes to a third party.ANS:T PTS:1 DIF: ModerateTOP:What is assurance?

8.The Australian Financial Reporting Council (FRC) is responsible for providing broad oversight of the process for setting accounting and auditing standards.ANS:T PTS:1 DIF: Moderate TOP:Financial Reporting Council (FRC) 9.The audit function is unique because it exists to perform services on a ‘client’ on behalf of shareholders, directors and other parties.ANS:T PTS:1 DIF: Easy TOP:Auditing defined 10.Auditing is the process of attesting to assertions about economic actions and events.ANS:T PTS:1 DIF:Easy TOP:Auditing defined 11.Auditing is the process of verifying the accuracy of the financial statements.ANS:F PTS:1 DIF: ModerateTOP:Auditing defined

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1-2Chapter 1: Auditing: Integral to the Economy 12.Internal auditing only provides assurance services to clients.ANS:F PTS:1 DIF: Moderate TOP:The internal audit profession 13.Auditing primarily exists because users need unbiased information on which to assess management performance and make economic decisions.ANS:T PTS:1 DIF: Moderate TOP:Auditing defined 14.The degree of confidence that users place on management’s financial statements is higher than that placed on audited financial statements because few users have direct knowledge of the company’s operations and management is the most knowledgeable about operations.ANS:F PTS:1 DIF: ModerateTOP:Auditing defined

• Corporate governance is an oversight structure that ensures that management operates in the best

interests of management.ANS:F PTS:1 DIF: Easy TOP:Demand for improved corporate governance 16.An assertion is a statement about an action, event, condition or performance over a specified time period.ANS:T PTS:1 DIF: Easy TOP:Auditing defined 17.Management is required to comment on the fairness of the company’s financial presentation.This reduces the auditor’s legal responsibility for the opinion rendered on the financial statements.ANS:F PTS:1 DIF: Difficult TOP:Auditing defined 18.Audited financial statements should be free from all errors and fraud.ANS:F PTS:1 DIF: ModerateTOP:Auditing defined 19.Audited financial statements should be presented fairly according to the substance of generally accepted accounting principles (GAAP).ANS:T PTS:1 DIF: ModerateTOP:Need for assurance 20.The Australian Auditing Standards Board (AUASB) is made up of members appointed by the Financial Reporting Council (FRC) and a Treasury appointed Chairman.ANS:T PTS:1 DIF: Moderate TOP:Auditing and Assurance Standards Board (AUASB) 21.The International Auditing and Assurance Standards Board (IAASB) is interested in harmonising auditing standards around the world and is working closely with US standard setters on selected standards.ANS:T PTS:1 DIF: Moderate TOP:International Auditing and Assurance Standards Board 22.Attestation is confined to an audit of client financial statements.© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 3 / 4

Auditing: A Business Risk Approach1-3

ANS:F PTS:1 DIF: Easy TOP:What is assurance?

23.An auditor must have a good understanding of the risks associated with a client’s industry in order to ensure that the financial statements reflect the underlying substance of accounting transactions and the economic effects of such transactions.ANS:T PTS:1 DIF: Easy TOP:Requirements to enter the public accounting profession 24.The Australian Auditing Standards Board provides the criteria against which the auditor measures the fairness of financial statement presentation for both public and private companies.ANS:F PTS:1 DIF: ModerateTOP:Financial Reporting Council (FRC) 25.Generally accepted accounting principles provide the criteria against which the auditor measures the fairness of financial statement presentation.ANS:T PTS:1 DIF: Moderate TOP:Auditing defined 26.Businesses that use independent auditors do not need the use of internal auditors.ANS:F PTS:1 DIF: Moderate TOP:The providers of assurance services 27.Registration for company auditors is the responsibility of the Australian Securities and Investments Commission (ASIC).ANS:T PTS:1 DIF: Easy TOP:The Australian Securities and Investments Commission (ASIC) 28.Internal auditing is an independent, objective evaluation function established within an organisation.ANS:T PTS:1 DIF: ModerateTOP:The internal audit profession 29.Operational audits are designed to determine if the company’s financial statements are prepared in compliance with generally accepted accounting principles (GAAP).ANS:F PTS:1 DIF: ModerateTOP:The internal audit profession 30.Governmental auditors perform operational and financial statement audits.ANS:T PTS:1 DIF: Easy TOP:The public sector auditing profession 31.The internal audit profession adheres exclusively to standards set by the Auditing and Assurance Standards Board (AUASB).ANS:F PTS:1 DIF: ModerateTOP:The Institute of Internal Auditors 32.The execution of solutions to issues brought to light by internal auditors is the responsibility of management of the organisation.© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

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