Test Bank For Auditing A Practical Approach With Data Analytics, Raymond N. Johnson, Laura Davis Wiley, Robyn Moroney, Fiona Campbell, Jane Hamilton

Test Bank For Auditing A Practical Approach With Data Analytics, Raymond N. Johnson, Laura Davis Wiley, Robyn Moroney, Fiona Campbell, Jane Hamilton

24.              The most common assurance service is the ________. A. audit of a company’s historical financial statements

B.    compilation of financial statements

C.    review of a company’s financial controls

D.   review of a company’s historical financial statements

Answer: A, Taxonomy: Knowledge, Difficulty: Easy, AICPA FC: Reporting, AACSB:

Communication, Learning Objective: LO1.1, Solution: The audit of a company’s historical financial statements is the most common assurance service.

25.              A review of historical financial statements is an example of ________.

A.        attestation service

B.        absolute assurance

C.        financial forecast

D.        applicable financial reporting framework

Answer: A, Taxonomy: Comprehension, Difficulty: Easy, AICPA FC: Reporting, AACSB: Communication, Learning Objective: LO1.1, Solution: An example of an attestation service is a review of historical financial statements.

26.              Assurance, attestation, and auditing are similar because all three represent a common process of _______.

A.        taking information prepared by someone else and comparing that information to an established set of criteria.

B.        compiling and reviewing historical financial statements and providing non-financial information.

C.        compiling historical financial statements and providing non-financial information and web security.

D.        reviewing financial forecast, examining internal controls, and providing websitesecurity.

Answer: A, Taxonomy: Comprehension, Difficulty: Easy, AICPA FC: Reporting, AACSB: Communication, Learning Objective: LO1.1, Solution: The terms assurance, attestation, and auditing are sometimes used interchangeably, but they actually represent different types of services. They are similar because they all represent a common process of an independent accounting firm taking information prepared by someone else and comparing that information to an established set of criteria.

27.              Which of the following is true of assurance services?

A.        Both attestation and auditing services fall under the term of assurance services.

B.        The term information refers to subject matter that is an entire system, not standalone data.

C.        The services are performed by someone who was involved with the creation of the information.

D.        The intended user is an independent Certified Public Accountant qualified to perform the auditing service.

Answer: A, Taxonomy: Comprehension, Difficulty: Easy, AICPA FC: Reporting, AACSB: Communication, Learning Objective: LO1.1, Solution: Both attestation and auditing services fall under the term of assurance services. The term independent implies that the service is performed by someone who was not involved with the creation of the information and who is objective in the evaluation of the information. The term information refers to subject matter that can be standalone data or entire systems. The auditor refers to an independent Certified Public Accountant, or CPA, who is qualified to perform the auditing service.

28.              When CPAs are hired to report on the integrity of financial forecasts and reports on financial reporting processes, it is called an ______________.

A.        attestation service

B.        absolute assurance

C.        applicable financial reporting framework

D.        audit service

Answer: A, Taxonomy: Comprehension, Difficulty: Easy, AICPA FC: Reporting, AACSB: Communication, Learning Objective: LO1.1, Solution: Companies produce financial information that goes beyond historical financial statements. Examples include financial forecasts and reports on financial reporting processes. When CPAs are hired to report on the integrity of this type of financial information, it is called an attestation service.

29.              In assurance services, the term “information” refers to subject matter that is _____________.

A.        historical or prospective

B.        created by independent or in-house services

C.        financial and outside the purview of the non-financial

D.        internal to a company only

Answer: A, Taxonomy: Knowledge, Difficulty: Easy, AICPA FC: Reporting, AACSB: Communication, Learning Objective: LO1.1, Solution: In the assurance services, the term information refers to subject matter that can be financial or non-financial, historical or prospective, or standalone data or entire systems, internal or external to a company.

30.              Which terms does the textbook claim are used interchangeably, but actually represent different types of services?

A.        assurance, attestation, and auditing

B.        accounting, auditing, and assurance

C.        accounting, attestation, and auditing

D.        assurance, attestation, and accounting

Answer: A, Taxonomy: Knowledge, Difficulty: Easy, AICPA FC: Reporting, AACSB: Analytic, Learning Objective: LO1.1, Solution: Assurance, attestation and auditing are used interchangeably but represent different services.

31.              Which of the following is included as a focus of assurance services?

A.        Compilation of historical financial statements

B.        Examination of internal controls

C.        Review of historical financial statements

D.        Review of financial forecast

Answer: C, Taxonomy: Comprehension, Difficulty: Easy, AICPA FC: Reporting, AACSB: Analytic, Learning Objective: LO1.1, Solution: A review is a type of assurance service.

32.              A key similarity between assurance, attestation, and auditing services is ________.

A.        the comparison of information prepared by someone else against an established set of criteria

B.        the comparison of actual output to projected output

C.        the comparison of financial accounting data to managerial accounting data

D.        the comparison of financial audit data to tax audit data

Answer: A, Taxonomy: Comprehension, Difficulty: Easy, AICPA FC: Reporting, AACSB: Analytic, Learning Objective: LO1.1, Solution: Assurance, attestation, and auditing services involve the comparison of information prepared by someone else against an established set of criteria.

33.              The purpose of audit services is to provide ________.

A.        financial statement users with an opinion as to the fair presentation of the financial reporting

B.        management with an opinion as to the fairness of the company’s managerial accounting procedures

C.        investment advice to the company

D.        limited assurance that no material modifications need to be made to the financial statements

Answer: A, Taxonomy: Comprehension, Difficulty: Easy, AICPA FC: Reporting, AACSB: Analytic, Learning Objective: LO1.1, Solution: The purpose of an audit is to provide financial statement users with an opinion as to the fair presentation of the financial reporting.

34.              Which are the most specific services provided by the auditor?

A.        Compilation services

B.        Audit services

C.        Attestation services

D.        Assurance services

Answer: B, Taxonomy: Comprehension, Difficulty: Easy, AICPA FC: Reporting, AACSB: Analytic, Learning Objective: LO1.1, Solution: Audit services are the most specific.

35.              Which is the most inclusive or broadest service provided by the auditor?

A.        Audit services

B.        Attestation services

C.        Assurance services

D.        A review of historical financial statements

Answer: C, Taxonomy: Comprehension, Difficulty: Easy, AICPA FC: Reporting, AACSB: Analytic, Learning Objective: LO1.1, Solution: Assurance services are the broadest service.

36.              The only professional who can audit a set of historical financial statements for a public or private company in the United States is ________.

A.        a Certified Public Accountant (CPA)

B.        a Certified Fraud Examiner (CFE)

C.        the IRS

D.        a loan officer

Answer: A, Taxonomy: Knowledge, Difficulty: Easy, AICPA FC: Reporting, AACSB: Analytic, Learning Objective: LO1.1, Solution: A CPA is the only professional in the United States who can audit a set of historical financial statements for a public or private company.

37.              The set of standards used in preparing the historical financial statements, such as GAAP or IFRS, is referred to as ________.

A.        the applicable financial reporting framework

B.        Generally Accepted Auditing Standards (GAAS)

C.        material modifications

D.        a review of historical financial statements

Answer: A, Taxonomy: Knowledge, Difficulty: Easy, AICPA FC: Reporting, AACSB: Analytic, Learning Objective: LO1.1, Solution: The set of standards used in preparing the historical financial statements is referred to as the applicable financial reporting framework.

38.              Any group that will be using the financial statements to make decisions, such as investors and creditors, is known as ________.

A.        intended users

B.        groups of standing

C.        decision-makers

D.        practitioners

Answer: A, Taxonomy: Knowledge, Difficulty: Easy, AICPA FC: Reporting, AACSB: Analytic, Learning Objective: LO1.1, Solution: Intended users are any group that will be using the financial statements to make decisions.

39.              Which of the following is not one of the three E’s needed to become a licensed CPA?

A.        Education

B.        Examination

C.        Experience

D.        Efficiency

Answer: D, Taxonomy: Knowledge, Difficulty: Easy, AICPA FC: Reporting, AACSB: Analytic, Learning Objective: LO1.1, Solution: The three E’s are education, examination, and experience.

40.              The only licensed accounting professionals in the United States are:

A.        Certified Public Accountants

B.        Chartered Accountants

C.        Certified Internal Auditors

D.        Certified Fraud Examiners

Answer: A, Taxonomy: Comprehension, Difficulty:  Easy, AICPA FC: Reporting, AACSB: Analytic, Learning Objective: LO1.1, Solution: CPAs are the only licensed accounting professionals in the United States.

41.              Assurance services are defined as ________.

A.        independent professional services that improve the quality of information, or its context, for decision makers

B.        individual provisional services to improve internal controls for financial statement users

C.        individual prospective financial statement quality

D.        independent information improvement

Answer: A, Taxonomy: Comprehension, Difficulty: Easy, AICPA FC: Reporting, AACSB: Analytic, Learning Objective: LO1.1, Solution: Assurance services are independent professional services that improve the quality of information, or its context, for decision makers.

42.              Which type of entity generally finds a review of historical financial statements to be the most useful?

A.        Large public corporations

B.        Small public corporations

C.        Large private corporations

D.        Small private corporations

Answer: D, Taxonomy: Comprehension, Difficulty: Easy, AICPA FC: Reporting, AACSB: Analytic, Learning Objective: LO1.1, Solution: Small private corporations typically find reviews to be the most useful.

43.              Which of the following is a characteristic of an audit of historical financial statements?

A.        It provides limited assurance that no material modifications need to be made to the financial statements.

B.        It expresses an opinion on the fair presentation of the financial statements.

C.        It is the same as an examination of internal controls.

D.        It is broader than a review engagement.

Answer: B, Taxonomy: Comprehension Application, Difficulty: Easy, AICPA FC: Reporting, AACSB: Analytic, Learning Objective: LO1.1, Solution: An audit expresses an opinion on the fair presentation of the financial statements.

44.              Which of the following is not one of the four sections tested on the CPA exam?

A.        Auditing and Attestation

B.        Business Environment and Concepts

C.        Regulation

D.        Internal Controls

Answer: D, Taxonomy: Knowledge, Difficulty: Easy, AICPA FC: Reporting, AACSB: Analytic, Learning Objective: LO1.1, Solution: Internal controls are not one of the four parts of the CPA exam.

45.              What is the final step in becoming a licensed CPA?

A.        Taking the CPA exam

B.        Meeting the educational requirements

C.        Work experience

D.        Evidence of personal integrity

Answer: C, Taxonomy: Comprehension, Difficulty: Easy, AICPA FC: Reporting, AACSB: Analytic, Learning Objective: LO1.1, Solution: The final step is getting the required work experience.

46.              Independent professional attestation services improve the quality of information. Quality is best described as an improvement in informational ________. A. relevance and reliability.

B.      financial and nonfinancial qualities

C.      historical and prospective qualities

D.     internal and external qualities

Answer: A, Taxonomy: Comprehension : Application, Difficulty: Easy, AICPA FC: Reporting, AACSB: Analytic, Learning Objective: LO1.1, Solution: Relevance and reliability improve the quality of information.

47.              The term practitioner would be least likely to be used when referring to the performance of ________.

A.        audit services

B.        attestation services

C.        assurance services

D.        bookkeeping services

Answer: A, Taxonomy: Comprehension, Difficulty: Easy, AICPA FC: Reporting, AACSB: Analytic, Learning Objective: LO1.1, Solution: The term practitioner would least likely be used when referring to an audit because it is so specific that professionals who perform audits are called auditors.

48.              A review of historical financial statements as compared to an audit of historical financial statements ________.

A.        is more extensive in terms of the work product required

B.        is typically less expensive

C.        provides greater assurance

D.        provides an opinion

Answer: B, Taxonomy: Comprehension, Difficulty: Easy, AICPA FC: Reporting, AACSB: Analytic, Learning Objective: LO1.1, Solution: A review is typically less expensive than an audit because much less time and effort are involved.

49.              The term independent with respect to assurance services implies that the service is ________.

A.        performed by someone who was not involved with the creation of the information.

B.        performed by someone who was involved with the creation of the information and, therefore, fully understands it.

C.        performed by a company employee.

D.        is subjective.

Answer: A Taxonomy: Comprehension, Difficulty: Easy, AICPA FC: Reporting, AACSB: Analytic, Learning Objective: LO1.1, Solution: Independence implies that the service is performed by someone who was not involved with the creation of the information.

50.              Examination of non-financial information falls under _______ services and outside of_______ services.

A.        assurance; audit

B.        attestation; assurance

C.        audit; assuranceD. attestation; audit

Answer: A, Taxonomy: Knowledge, Difficulty: Easy, AICPA FC: Measurement Analysis and Interpretation, AACSB: Ethics, Learning Objective: LO1.1, Solution: Assurance services include compilation of historical statements, website security, IT operations, and non-financial information. Attestation services (under the umbrella of assurance services) include review of historical financial statements, review of financial forecast, and examination of internal control. Historical financial statements come under audit services.

51.              Among the various processes relating to auditing and assurance standards, the largest umbrella represents ________ services.

A.        assurance

B.        attestation

C.        audit

D.        review

Answer: A, Taxonomy: Knowledge, Difficulty: Easy, AICPA FC: Measurement Analysis and Interpretation, AACSB: Ethics, Learning Objective: LO1.1, Solution: Among the various processes relating to auditing and assurance standards, the largest umbrella represents assurance services:

independent professional services that improve the quality of information, or its context, for decision makers.

52.              Within a U.S. context, the applicable financial reporting framework is typically _______.

A.        Generally Accepted Accounting Principles (GAAP)

B.        International Standard on Quality Control (ISQC)

C.        Auditing and Assurance Standards Board (AASB)

D.        International Financial Reporting Standards (IFRS)

Answer: A, Taxonomy: Knowledge, Difficulty: Easy, AICPA FC: Measurement Analysis and Interpretation, AACSB: Ethics, Learning Objective: LO1.2, Solution: Within a U.S. context, the applicable financial reporting framework is typically generally accepted accounting principles (GAAP).

53.              Which two audits does an integrated audit combine?

A.        A financial statement audit and an audit of the effectiveness of ICFR

B.        A financial statement audit and a compliance audit

C.        A compliance audit and an audit of the effectiveness of ICFR

D.        A performance audit and an environmental audit

Answer: A, Taxonomy: Knowledge, Difficulty: Easy, AICPA FC: Measurement Analysis and Interpretation, AACSB: Ethics, Learning Objective: LO1.2, Solution: An integrated audit is an audit that combines the financial statement audit with an audit of the effectiveness of ICFR.

54.              The audit related to which of the following is specifically meant to express an opinion on the effectiveness of the company’s system of internal controls over financial reporting?

A.        ICFR

B.        GAAP

C.        FASB

D.        AICPA

Answer: A, Taxonomy: Knowledge, Difficulty: Easy, AICPA FC: Measurement Analysis and Interpretation, AACSB: Ethics, Learning Objective: LO1.2, Solution: Public companies in the U.S. are also required to have an audit of internal controls over financial reporting (ICFR). The objective in an audit of ICFR is to express an opinion on the effectiveness of the company’s system of internal controls over financial reporting (AS 2201.03) following section 404(b) of the Sarbanes Oxley Act of 2002.

55.              Which audit involves gathering evidence to determine whether the person or entity under review has followed the rules, policies, procedures, laws and regulations with which they must conform?

A.        A compliance audit

B.        A performance audit

C.        An integrated audit

D.        An internal audit

Answer: A, Taxonomy: Comprehension, Difficulty: Easy, AICPA FC: Measurement Analysis and Interpretation, AACSB: Ethics, Learning Objective: LO1.2, Solution: A compliance audit involves gathering evidence to determine whether the person or entity under review has followed the rules, policies, procedures, laws and regulations with which they must conform.