Question 1

The audit objective that all balances include all items that should be recorded in that account is related most closely to which one of the ASB balance assertions?
A)Existence.
B)Rights and obligations.
C)Completeness.
D)Valuation.

Accepted Answer

The completeness assertion is concerned with ensuring that all balances include all items that should be recorded in that account. It requires the auditor to ensure that all transactions and events that should have been recorded have been included in the financial statements.

Question 2

The audit objective that all the transactions and accounts presented in the financial statements represent real assets, liabilities, revenues, and expenses is related most closely to which of the PCAOB assertions?
A)Existence or occurrence.
B)Rights and obligations.
C)Completeness.
D)Presentation and disclosure.

Accepted Answer

The assertion of existence or occurrence relates to the completeness and accuracy of the recorded transactions and events in the financial statements, ensuring that all assets, liabilities, revenues, and expenses actually exist and have occurred during the period under review. This assertion applies to audit objective of verifying the reality of the transactions and accounts presented in the financial statements.

Question 3

Which of the following is the essential purpose of the audit function?
A)Detection of fraud.
B)Examination of individual transactions to certify as to their validity.
C)Determination of whether the client's financial statement assertions are fairly stated.
D)Assurance of the consistent application of correct accounting procedures.

Accepted Answer

The essential purpose of the audit function is to determine whether the client's financial statement assertions are fairly stated. While fraud detection may be a part of the audit process, it is not the primary purpose. Similarly, the examination of individual transactions and assurance of consistent application of correct accounting procedures are important components of auditing but are not the essential purpose.

Question 4

The engineering department at Omni Company built a piece of equipment in the company's own shop for use in the company's operations. The auditor reviewed all work orders that were capitalized as part of the equipment costs. Which of the following is the ASB transaction assertion most closely related to the auditor's testing?
A)Occurrence.
B)Completeness.
C)Accuracy.
D)Classification.

Accepted Answer

The auditor is concerned with whether the costs were properly classified as capital expenditures, which relates to the classification assertion.

Question 5

Which of the following best describes the primary role and responsibility of independent external auditor?
A)Produce a company's annual financial statements and notes.
B)Express an opinion on the fairness of a company's annual financial statements and footnotes.
C)Provide business consulting advice to audit clients.
D)Obtain an understanding of the client's internal control structure and give management a report about control problems and deficiencies.

Accepted Answer

The primary role and responsibility of an independent external auditor is to express an opinion on the fairness of a company's annual financial statements and footnotes. This opinion provides assurance to the users of financial statements that the information presented in the financial statements is reliable and accurate. The auditor is not responsible for producing the financial statements or providing consulting advice, although they do assess the client's internal control structure as part of their audit process.

Question 6

In order to be considered as external auditors with respect to government agencies, GAO auditors must be:
A)organizationally independent.
B)empowered as the accounting and auditing agency by the U.S. Congress.
C)funded by the federal government.
D)guided by standards similar to GAAS.

Accepted Answer

GAO auditors must be organizationally independent to ensure their audits are unbiased and objective, which is a key requirement for external auditors.

Question 7

The audit objective that all transactions are recorded in the proper account is related most closely to which one of the ASB transaction assertions?
A)Occurrence.
B)Completeness.
C)Accuracy.
D)Classification.

Accepted Answer

The classification assertion pertains to ensuring that transactions are recorded in the proper account. The occurrence assertion ensures that transactions actually took place, completeness assertion ensures that all transactions were recorded, and accuracy assertion ensures that transactions were recorded at the correct amount.

Question 8

Which of the following is not a PCAOB assertion about inventory related to presentation and disclosure?
A)Inventory is properly classified as a current asset on the balance sheet.
B)Inventory is properly stated at its cost on the balance sheet.
C)Major inventory categories and their valuation bases are adequately disclosed in notes.
D)All of these are PCAOB presentation and disclosure assertions about inventory.

Accepted Answer

Inventory being properly stated at its cost on the balance sheet is related to valuation and allocation assertion, not directly to presentation and disclosure. Presentation and disclosure assertions focus on how information is presented in financial statements and accompanying notes, including proper classification and adequate disclosure of accounting policies and amounts.

Question 9

Because of the risk of material misstatement, an audit of financial statements in accordance with generally accepted auditing standards should be planned and performed with an attitude of:
A)objective judgment.
B)independent integrity.
C)professional skepticism.
D)impartial conservatism.

Accepted Answer

Professional skepticism is considered the most important attitude for auditors to maintain throughout the audit process. This means that auditors must approach the audit with a questioning mind and be prepared to challenge the information provided by the client. It involves a critical assessment of evidence and requires auditors to exercise professional judgment and be willing to make difficult decisions when necessary. Objective judgment, independent integrity, and impartial conservatism are all important attitudes as well, but professional skepticism is the most critical for ensuring the audit is performed in accordance with auditing standards.

Question 10

The auditor's judgment concerning the overall fairness of the presentation of financial position, results of operations, and cash flows is applied within the framework of:
A)quality control.
B)generally accepted auditing standards, which include the concept of materiality.
C)the auditor's evaluation of the audited company's internal control.
D)the applicable financial reporting framework (i.e., GAAP in the United States).

Accepted Answer

The auditor's judgment concerning the overall fairness of the presentation of financial position, results of operations, and cash flows is applied within the framework of the applicable financial reporting framework, which, in the United States, is GAAP. The auditor is responsible for ensuring that the financial statements are presented fairly, in all material respects, in accordance with the applicable financial reporting framework. This is the foundation for an auditor's opinion on the fairness of the presentation of financial statements.

Question 11

The engineering department at Omni Company built a piece of equipment in the company's own shop for use in the company's operations. When looking at the ending balance for the fixed asset account the auditor examined all work orders, purchased materials, labor cost reports, and applied overhead that were capitalized as part of the equipment costs. Which of the following is the ASB balance assertion most closely related to the auditor's testing?
A)Existence.
B)Completeness.
C)Rights and obligations.
D)Valuation.

Accepted Answer

The auditor's testing of all work orders, purchased materials, labor cost reports, and applied overhead to determine the capitalized cost of the equipment is related to the valuation assertion, which ensures that the recorded value of the fixed asset is accurate and reflects its economic worth.

Question 12

Which of the following best describes assurance services?
A)Independent professional services that report on the client's financial statements.
B)Independent professional services that improve the quality of information for decision makers.
C)Independent professional services that report on specific written management assertions.
D)Independent professional services that improve the operations of the client.

Accepted Answer

Assurance services are independent professional services that enhance the quality of information for decision makers. While they may involve some level of reporting on the client's financial statements or specific management assertions, the primary focus is on improving the quality of information rather than simply providing an opinion on existing information. Option A only describes audit services. Option C describes attestation services. Option D describes consulting services.

Question 13

Which of the following best describes the main reason independent auditors report on management's financial statements?
A)Management fraud may exist and it is likely to be detected by independent auditors.
B)The management that prepares the statements and the persons who use the statements may have conflicting interests.
C)Misstated account balances may be corrected as the result of the independent audit work.
D)The management that prepares the statements may have a poorly designed system of internal control.

Accepted Answer

Independent auditors provide an objective assessment of financial statements to ensure their accuracy and reliability, addressing potential conflicts of interest between management (who prepare the statements) and the users of the statements (such as investors, creditors, and regulators). This helps to maintain trust and transparency in financial reporting.

Question 14

The audit objective that footnotes in the financial statements should be clear and expressed such that the information is easily conveyed to the readers of the financial statements is related most closely with which of the ASB presentation and disclosure assertions?
A)Occurrence.
B)Rights and obligations.
C)Comprehensibility.
D)Understandability.

Accepted Answer

The assertion related to clear and easily conveyed information in the footnotes of financial statements is most closely related to the Understandability assertion, which is concerned with whether information is presented in a clear and understandable manner for the intended users.

Question 15

Assurance services involve all of the following, except:
A)relevance as well as the reliability of information.
B)nonfinancial information as well as traditional financial statements.
C)providing absolute rather than reasonable assurance.
D)electronic databases as well as printed reports.

Accepted Answer

Assurance services provide reasonable assurance, not absolute assurance. The other options are all examples of the types of services that assurance providers can offer.

Question 16

The audit objective that all transactions are recorded in the proper period is related most closely to which of the Audit Standards Board (ASB) transaction assertions?
A)Occurrence.
B)Completeness.
C)Cutoff.
D)Accuracy.

Accepted Answer

The audit objective of ensuring that transactions are recorded in the proper period aligns with the ASB transaction assertion of cutoff, which focuses on whether transactions are recorded in the correct accounting period. Occurrence relates to whether recorded transactions actually occurred, completeness relates to whether all transactions were recorded, and accuracy relates to whether recorded transactions are valid and accurate.

Question 17

What is the term used to identify the risk that the client's financial statements may be materially false and misleading?
A)Business risk.
B)Information risk.
C)Client risk.
D)Risk assessment.

Accepted Answer

Information risk refers to the risk that the information provided by the client may not be reliable and accurate, leading to financial statements that are materially false and misleading. Business risk refers to the risk inherent to the client's industry and operations. Client risk refers to the risk associated with a specific client, such as their reputation or financial stability. Risk assessment is a general term used to describe the process of identifying and evaluating risks.

Question 18

The audit objective that all balances include items owned by the client is related most closely to which one of the ASB balance assertions?
A)Existence.
B)Rights and obligations.
C)Completeness.
D)Valuation.

Accepted Answer

The audit objective that all balances include items owned by the client is most closely related to the "Rights and obligations" assertion. This assertion concerns whether the entity has the rights to the assets listed and the obligations related to the liabilities recorded, ensuring that the entity owns or has legal rights to the assets reported on its balance sheet.

Question 19

Which of the following is not included in the American Accounting Association (AAA) definition of auditing?
A)Potential conflict of interest.
B)Systematic process.
C)Assertions about economic actions.
D)Established criteria.

Accepted Answer

The AAA definition of auditing includes systematic process, assertions about economic actions, and established criteria. However, potential conflict of interest is not specifically mentioned in the definition.

Question 20

Which of the following is not a recommendation usually made following the completion of an operational audit?
A)Economic and efficient use of resources.
B)Effective achievement of business objectives.
C)Attesting to the fairness of the financial statements.
D)Compliance with company policies.

Accepted Answer

Attesting to the fairness of financial statements is a recommendation made following a financial audit, not an operational audit. The other options listed are typical recommendations made following completion of an operational audit.

Quiz 1: Auditing and Assurance Services

The audit objective that all balances include all items that should be recorded in that account is related most closely to which one of the ASB balance assertions?

The audit objective that all the transactions and accounts presented in the financial statements represent real assets, liabilities, revenues, and expenses is related most closely to which of the PCAOB assertions?

Which of the following is the essential purpose of the audit function?

Which of the following best describes the primary role and responsibility of independent external auditor?

In order to be considered as external auditors with respect to government agencies, GAO auditors must be:

The audit objective that all transactions are recorded in the proper account is related most closely to which one of the ASB transaction assertions?

Which of the following is not a PCAOB assertion about inventory related to presentation and disclosure?

Because of the risk of material misstatement, an audit of financial statements in accordance with generally accepted auditing standards should be planned and performed with an attitude of:

The auditor's judgment concerning the overall fairness of the presentation of financial position, results of operations, and cash flows is applied within the framework of:

Which of the following best describes assurance services?

Which of the following best describes the main reason independent auditors report on management's financial statements?

The audit objective that footnotes in the financial statements should be clear and expressed such that the information is easily conveyed to the readers of the financial statements is related most closely with which of the ASB presentation and disclosure assertions?

Assurance services involve all of the following, except:

The audit objective that all transactions are recorded in the proper period is related most closely to which of the Audit Standards Board (ASB) transaction assertions?

What is the term used to identify the risk that the client's financial statements may be materially false and misleading?

The audit objective that all balances include items owned by the client is related most closely to which one of the ASB balance assertions?

Which of the following is not included in the American Accounting Association (AAA) definition of auditing?

Which of the following is not a recommendation usually made following the completion of an operational audit?