Multiple Choice Questions

Chapter 01 - Introduction to Auditing 1-1

Auditing An International Approach 8th Edition Smieliauskas Test Bank Chapter 01 Introduction to Auditing

Multiple Choice Questions

• Which of the following best describes the main reason that independent auditors report on a

company's financial statements?

• Management fraud may exist within the company and it is likely that the independent

auditors will detect it.

• Users of financial statements need confidence in the numbers they base their decisions on.
• Misstated account balances may be corrected as the result of the independent audit work.
• The accounting system from which the financial statements are derived may have a poorly

designed system of internal control.

Accessibility: Keyboard Navigation

Blooms: Understand

Difficulty: Medium

Learning Objective: 01-01 Explain the importance of auditing.

Topic: 01-02 Introduction: The Concept of Auditing

Topic: 01-04 A Simple Illustration of the Importance of Auditing

• Reducing information risk means the same as .
• serving the public interest
• monitoring economic activities
• improving the credibility of information
• ensuring generally accepted accounting principles are used to measure profit

Accessibility: Keyboard Navigation

Blooms: Remember

Difficulty: Easy

Learning Objective: 01-01 Explain the importance of auditing.

Topic: 01-02 Introduction: The Concept of Auditing Topic: 01-04 A Simple Illustration of the Importance of Auditing 1 / 4

Chapter 01 - Introduction to Auditing 1-2

• In an audit engagement, the three-party accountability relationship involves all but which of

entities?

• society
• the users
• the auditor
• the accountable party

Accessibility: Keyboard Navigation

Blooms: Remember

Difficulty: Easy

Learning Objective: 01-01 Explain the importance of auditing.

Topic: 01-02 Introduction: The Concept of Auditing

• The idea of recognizing auditing as playing a bigger part of social control is known as

.

• Professional responsibility
• An accountability relationship
• The effective auditor concept
• The audit society concept

Accessibility: Keyboard Navigation

Blooms: Remember

Difficulty: Medium

Learning Objective: 01-01 Explain the importance of auditing.

Topic: 01-02 Introduction: The Concept of Auditing

• The agency problem can be mitigated by .
• greater transparency
• a higher degree of independence
• design of contracts
• internal auditing

Accessibility: Keyboard Navigation

Blooms: Understand

Difficulty: Medium

Learning Objective: 01-01 Explain the importance of auditing.

Topic: 01-05 Agency Theory and Accountability 2 / 4

Chapter 01 - Introduction to Auditing 1-3

• The underlying conditions that create demand by users for reliable financial information

include the fact that .

• more reliable information will allow investors to calculate the rate of return on their

investment

• users are separated from accounting records by distance and time
• governments rely on such information to create tax policies
• there is a need for the expression of an opinion as to the fairness of financial statements

Accessibility: Keyboard Navigation

Blooms: Remember

Difficulty: Easy

Learning Objective: 01-02 Distinguish auditing from accounting.

Topic: 01-07 Accounting

• The auditee is the person or company .
• who will use the audited information
• who performs an audit
• who pays the audit fee
• whose information is being audited

Accessibility: Keyboard Navigation

Blooms: Understand

Difficulty: Easy

Learning Objective: 01-02 Distinguish auditing from accounting.

Topic: 01-08 More on Auditing 3 / 4

Chapter 01 - Introduction to Auditing 1-4

• Professional judgment is a widely used concept in accounting and auditing. How is it

defined in the audit standards?

• There is no definition of professional judgment in the auditing standards.
• Professional judgment includes consideration of key principles and concepts of disciplines

underlying the professional standards, such as economics, psychology, law, finance, statistics and philosophy.

• Professional judgment means reaching a complex decision by incorporating auditing

standards, accounting standards, and rules of professional ethics in a coherent manner.

• Professional judgment involves specialized concepts and language integrating several

disciplines in order to provide appropriate justification for audit decisions.

Accessibility: Keyboard Navigation

Blooms: Remember

Difficulty: Medium

Learning Objective: 01-02 Distinguish auditing from accounting.

Topic: 01-08 More on Auditing

• What is the primary role and responsibility of independent external auditors?
• to prepare a company's annual financial statements and notes.
• to perform an audit and provide an opinion on the financial statements of a company.
• to provide business consulting advice to audit clients.
• to obtain an understanding of a client's internal control system and prepare a report for

management about control weaknesses.

Accessibility: Keyboard Navigation

Blooms: Understand

Difficulty: Medium

Learning Objective: 01-02 Distinguish auditing from accounting.

Topic: 01-12 Audit Objective and the Auditor's Report

• / 4