Multiple Choice Questions 1. Independent auditors are required to document their assessment of reasonable assurance through the use of: The materiality concept. The audit risk model. Both (a) and (b). Neither (a) or (b). 2. External auditors are not and should not be expected to provide absolute assurance regarding reliability of financial statements primarily because of: The nature and limitation of evidence-gathering procedures. Management assertions and financial representations that are not certain by nature. The possibility of false documentation. All of the above. 3. According to academic studies conducted for audit quality, which of the following statement(s) is (are) correct: Big accounting firms are perceived as more likely to disclose a discovered error. There is a negative relationship between auditor tenure and the discovery of material misstatements for the early years. Financial reporting quality is negatively affected by having a large audit firm audit financial statements. All of the 4. SOX adds stipulations surrounding employee affiliation between clients and auditors. For example, the staff is prohibited from accepting a key financial position with the audit clients for at least: Five years. Three years. Two One year. 5. An advantage of the pass/fail audit approach is that: It does not reflect the quality of the financial statements. It does not provide relevant or useful information to investors regarding the quality of the company as an investment or credit risk. It is standard pass/fail language that provides uniformity and improves comparability. It focuses on fair presentation rather than true and accurate presentation of financial position and results of operations. 6. A company’s ability to initiate, measure, authorize, and report financial information in accordance with GAAP is affected by: Significant deficiencies in internal control. Inconsequential deficiencies in internal control. Material weaknesses in internal control. None of the above. 7. PCAOB AS No. 3 requires auditors to prepare and maintain audit documentation in sufficient detail for at least: years. Five Four Seven years. 8. Audit firms are permitted to perform which of the following tax services for their audit clients? Routine tax return preparation and tax compliance.
Multiple Choice Questions 1. Independent auditors are required to document their assessment of reasonable assurance through the use of: The materiality concept. The audit risk model. Both (a) and (b). Neither (a) or (b). 2. External auditors are not and should not be expected to provide absolute assurance regarding reliability of financial statements primarily because of: The nature and limitation of evidence-gathering procedures. Management assertions and financial representations that are not certain by nature. The possibility of false documentation. All of the above. 3. According to academic studies conducted for audit quality, which of the following statement(s) is (are) correct: Big accounting firms are perceived as more likely to disclose a discovered error. There is a negative relationship between auditor tenure and the discovery of material misstatements for the early years. Financial reporting quality is negatively affected by having a large audit firm audit financial statements. All of the 4. SOX adds stipulations surrounding employee affiliation between clients and auditors. For example, the staff is prohibited from accepting a key financial position with the audit clients for at least: Five years. Three years. Two One year. 5. An advantage of the pass/fail audit approach is that: It does not reflect the quality of the financial statements. It does not provide relevant or useful information to investors regarding the quality of the company as an investment or credit risk. It is standard pass/fail language that provides uniformity and improves comparability. It focuses on fair presentation rather than true and accurate presentation of financial position and results of operations. 6. A company’s ability to initiate, measure, authorize, and report financial information in accordance with GAAP is affected by: Significant deficiencies in internal control. Inconsequential deficiencies in internal control. Material weaknesses in internal control. None of the above. 7. PCAOB AS No. 3 requires auditors to prepare and maintain audit documentation in sufficient detail for at least: years. Five Four Seven years. 8. Audit firms are permitted to perform which of the following tax services for their audit clients? Routine tax return preparation and tax compliance.
Ch09%20Effective%20Audit%20Function.docx