Ch 2 HW

Question 1

1) Auditors may be independent in fact but not independent in appearance.

T or F

Answer 1

True

Question 2

2)

Answer 2

2)

Question 3

3) Both relevance and reliability affect the appropriateness of audit evidence.

T or F

Answer 3

True

Question 4

4) Generally accepted auditing standards must be followed on all audit engagements.

True
False

Answer 4

True

Question 5

5) The reporting principle relates to a firm’s system of quality control criteria for conducting an audit.

True
False

Answer 5

False

Question 6

6) Auditors cannot effectively satisfy the responsibilities principle requiring due care if they have not also satisfied the performance principle.

True
False

Answer 6

True

Question 7

7) Substantive procedures performed by the audit team are most closely related to the risk of material misstatement.

True
False

Answer 7

False

Question 8

8) Auditing procedures are the same as auditing standards.

True
False

Answer 8

False

Question 9

9) The concept of due care reflects the need for auditors to plan and perform the audit with an appropriate level of professional skepticism.

True
False

Answer 9

True

Question 10

10) Under the performance principle, auditors are required to provide absolute assurance that the client’s financial statements do not contain material misstatements.

True
False

Answer 10

False

Question 11

11) The performance principle sets forth quality criteria for conducting an audit.

True
False

Answer 11

True

Question 12

12)

Answer 12

12)

Question 13

13) Control risk is the probability that a material misstatement (error or fraud) could occur and not be prevented or detected on a timely basis by the auditors’ substantive procedures.

True
False

Answer 13

False

Question 14

14) The term “appropriateness” refers to the number of transactions or components of an account balance examined by auditors.

True
False

Answer 14

False

Question 15

15) To be considered material, an item must be one that would influence the decision of financial statement users.

True
False

Answer 15

True

Question 16

16) The contents of the auditors’ report are guided by the performance principle of GAAS.

True
False

Answer 16

False

Question 17

17) An unmodified opinion indicates that the financial statements present the entity’s financial condition, results of operations, and cash flows in conformity with GAAP.

True
False

Answer 17

True

Question 18

18) The auditors’ report should either contain an expression of opinion on the financial statements taken as a whole or an assertion to the effect that an opinion cannot be expressed.

True
False

Answer 18

True

Question 19

19) An important element of quality control procedures related to meeting relevant ethical requirements is policies and procedures relating to the independence of the firm and its personnel.

True
False

Answer 19

True

Question 20

20) The purpose of a system of quality control is to provide reasonable assurance that the firm and its personnel issue reports that are appropriate under the circumstances.

True
False

Answer 20

True

Question 21

21) Which of the following combinations of standards and types of entities would not represent appropriate professional
guidance?
A) Auditing Standards, public entities.
B) Interim Auditing Standards, public entities.
C) Interim Auditing Standards, nonpublic entities.
D) Statements on Auditing Standards, nonpublic entities.

Answer 21

C) Interim Auditing Standards, nonpublic entities.

Question 22

22)

Answer 22

22)

Question 23

23) Which of the following is not related to the performance principle of GAAS?
A) Due care
B) Planning and supervision
C) Risk of material misstatement
D) Sufficient appropriate evidence

Answer 23

A) Due care

Question 24

24) Which of the following statements is more closely related to independence in fact, rather than independence in appearance?
A) Ownership of a financial interest in a client by an auditors’ distant relative.
B) The auditors’ actual state of mind and unbiased mental attitude.
C) Ownership of a financial interest in a client by an auditors’ spouse.
D) Employment of an auditors’ child in a position of influence within a client.

Answer 24

B) The auditors’ actual state of mind and unbiased mental attitude.

Question 25

25)

Answer 25

25)

Question 26

26) The application of relevant training, knowledge, and experience in making informed decisions about appropriate courses of action during an audit is known as:
A) Absolute assurance.
B) Professional skepticism.
C) Professional judgment.
D) Reasonable assurance.

Answer 26

C) Professional judgment.

Question 27

27) Which of the following situations would provide auditors with a lower level of detection risk?
A) Evaluating a smaller number of transactions or components of an account balance.
B) Relying extensively on verbal inquiry of client personnel in gathering evidence.
C) Examining an account that is more susceptible to misstatement because of complex calculations and accounting methods.
D) Inspecting an item rather than directly confirming the existence of that item with third parties.

Answer 27

D) Inspecting an item rather than directly confirming the existence of that item with third parties.

Question 28

28) The opinion paragraph of the auditors’ report includes a statement that
A) the financial statements are the responsibility of management.
B) the audit was conducted in accordance with generally accepted auditing standards.
C) the audit provides a reasonable basis for an opinion.
D) the financial statements are presented in conformity with a financial reporting framework such as generally accepted accounting principles.

Answer 28

D) the financial statements are presented in conformity with a financial reporting framework such as generally accepted accounting principles.

Question 29

29) When financial statements do not present fairly the financial condition, results of operations, and cash flows of an entity, an auditor would mostly likely issue a(n):
A) Qualified opinion.
B) Disclaimer of opinion.
C) Unmodified opinion.
D) Adverse opinion.

Answer 29

D) Adverse opinion.

Question 30

30) To ensure that a public accounting firm is providing services that conform to professional standards, the firm should follow
A) generally accepted accounting principles
B) the performance principle of GAAS.
C) international auditing standards.
D) its system of quality control.

Answer 30

D) its system of quality control.

Question 31

31)

Answer 31

31)

Question 32

32) Gathering sufficient, appropriate evidence.
A) Responsibilities
B) Reporting principles
C) Performance

Answer 32

C) Performance

Question 33

33) Exercising an appropriate level of professional skepticism.
A) Reporting principles
B) Responsibilities
C) Performance

Answer 33

B) Responsibilities

Question 34

34) Issuing a qualified opinion because of a material, yet not pervasive, departure from GAAP.
A) Performance
B) Responsibilities
C) Reporting

Answer 34

C) Reporting

Question 35

35) Establishing materiality levels for use in determining the amount of evidence to be gathered.
A) Performance
B) Responsibilities
C) Reporting principles

Answer 35

A) Performance

Question 36

36) Considering the susceptibility of the account balance to misstatement to assess the risk of material misstatement.
A) Performance
B) Responsibilities
C) Reporting principles

Answer 36

A) Performance

Question 37

37)

Answer 37

37)

Question 38

38) Considering whether a scope limitation precludes sufficient evidence to allow an opinion to be expressed on the entity’s financial statements.
A) Reporting principles
B) Responsibilities
C) Performance

Answer 38

A) Reporting principles

Question 39

39) Planning the work to provide reasonable assurance that the financial statements are free from material misstatement.
A) Responsibilities
B) Performance
C) Reporting principles

Answer 39

B) Performance

Question 40

40) Evaluating the potential relationships between the auditor and family who are employed by the entity.
A) Reporting principles
B) Performance
C) Responsibilities

Answer 40

C) Responsibilities