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1 Copyright © 2022 Pearson Canada, Inc.

Auditing: The Art

and Science of Assurance Engagements, 15ce (Arens) All Chapters Test Bank Download Link is at the end of this file Chapter 1 The Demand for Audit and Other Assurance Services 1.1 Define an assurance engagement.1) What is the nature of the service provided when an auditor evaluates information using suitable criteria and issues a report that attests to the reliability of the information?

• internal audit engagement
• review engagement
• compilation engagement
• attestation engagement

Answer: D

Diff: 2

Learning Objective: 1-1 Define an assurance engagement.

2) The No-Name Agency conducts an independent service for a company to determine if its suppliers have complied with health and safety regulations, child labour guidelines, and other employee welfare issues. What type of service is No-Name providing?

• assurance
• attest
• review
• compilation

Answer: A

Diff: 2

Learning Objective: 1-1 Define an assurance engagement.

3) Which of the following is an example of an attestation engagement?

• accounting and bookkeeping services for the accounts
• an audit of internal controls over financial reporting
• preparation of the annual financial statements with notes
• completion of provincial and federal tax returns

Answer: B

Diff: 1

Learning Objective: 1-1 Define an assurance engagement.

4) When do individuals and organizations typically need assurance services?

• usually only when organizations obtain debt or other loans
• for five years from the start of an organization until debt is retired
• only when historical data, such as financial information, need to be audited
• whenever assurance is provided by a practitioner who is independent and unbiased

Answer: D

Diff: 2

Learning Objective: 1-1 Define an assurance engagement. 1 / 4

2 Copyright © 2022 Pearson Canada, Inc.5) A major type of assurance service performed by large public accounting firms is

• auditing.
• reviewing.
• compilation.
• management consulting.

Answer: A

Diff: 1

Learning Objective: 1-1 Define an assurance engagement.

6) Two types of services provided by public accounting firms are audits and reviews. Discuss the similarities and differences between these two types of services. Which type provides the most assurance?Answer: Two primary types of services are audits of historical financial statements and reviews of historical financial statements. While both services involve the accumulation and evaluation of evidence regarding assertions made by management in the company's financial statements, an audit involves a more extensive examination and provides a higher level of assurance about the client's financial statements than a review.

Diff: 1

Learning Objective: 1-1 Define an assurance engagement.

1.2 Define auditing and its purpose.

1) Which of the following illustrates the definition of auditing with respect to the evidence analysis process?

• accumulation and evaluation of evidence regarding assertions
• learning about different types of computing technology, such as mainframes
• writing an operational audit report that is tailored to the client's situation
• making sure that the auditor is competent and understands evidence gathering

Answer: A

Diff: 1

Learning Objective: 1-2 Define auditing and its purpose.

2) Auditing should be done by a qualified

• chartered accountant.
• certified management accountant.
• competent and independent person.
• professional accountant.

Answer: C

Diff: 2

Learning Objective: 1-2 Define auditing and its purpose.

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3 Copyright © 2022 Pearson Canada, Inc.3) Which of the following illustrates the definition of auditing with respect to the reporting process?

• accumulation and evaluation of evidence about balance sheet accounts
• reporting on the degree of correspondence between financial statements and ASPE/IFRS
• writing an operational audit report that is tailored to the client's situation
• making sure that the auditor is competent and understands evidence gathering

Answer: B

Diff: 2

Learning Objective: 1-2 Define auditing and its purpose.

4) In the audit of historical financial statements by PA firms, the criteria used are

• generally accepted auditing standards.
• relevant accounting frameworks.
• regulations of the Canada Revenue Agency.
• regulations of the provincial securities commissions.

Answer: B

Diff: 1

Learning Objective: 1-2 Define auditing and its purpose.

5) A large PA firm has assessed evidence collected during an engagement. Criteria used to assess the financial statements were International Financial Reporting Standards (IFRS). A high level of assurance was obtained. The type of engagement conducted was

• an audit.
• a review.
• management consulting.
• a compilation.

Answer: A

Diff: 2

Learning Objective: 1-2 Define auditing and its purpose.

6) The auditor and the entities being audited should agree on the criteria to be used in the audit

• well in advance before the audit starts.
• after the audit planning has been done.
• as they progress with the audit, as they can determine which criteria are most suitable.
• at the end of the audit.

Answer: A

Diff: 1

Learning Objective: 1-2 Define auditing and its purpose.

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4 Copyright © 2022 Pearson Canada, Inc.7) George had a conversation with the accounting personnel and documented information about how the accounting systems function. He has also placed copies of accounting forms in his files.George is performing which task?

• accounting procedures
• evidence gathering
• tax audit
• audit report preparation

Answer: B

Diff: 3

Learning Objective: 1-2 Define auditing and its purpose.

8) One of the reasons that an auditor must be competent is so that they can

• understand the engagement risks and the criteria used by the client.
• explain to staff how the bookkeeping should be done.
• record the transactions properly for the underlying records.
• capture the information properly in the computer files.

Answer: A

Diff: 2

Learning Objective: 1-2 Define auditing and its purpose.

9) One of the reasons that an auditor must be competent is so that they can

• select the type and amount of evidence to accumulate.
• explain to staff how the bookkeeping should be done.
• record the transactions properly for the underlying records.
• capture the information properly in the computer files.

Answer: A

Diff: 2

Learning Objective: 1-2 Define auditing and its purpose.

10) It is important for the auditor to be independent because

• otherwise, the auditor would not charge a fair rate to the client.
• otherwise, the auditor might not be as knowledgeable of the subject matter and the criteria.
• this will prevent bias in accumulating and evaluating evidence.
• the Canadian tax authorities require that the auditor be independent.

Answer: C

Diff: 2

Learning Objective: 1-2 Define auditing and its purpose.

11) As an external auditor is paid a fee by a client company, he or she

• is absolutely independent and may conduct an audit.
• may still be sufficiently independent to conduct an audit.
• is never considered to be independent.
• must receive approval from the relevant provincial securities commission before conducting

an audit.

Answer: B

Diff: 1

Learning Objective: 1-2 Define auditing and its purpose.

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