Auditing A Risk Based-Approach to Conducting a Quality Audit Johnstone 10th Edition Test Bank

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1. The need for assurance services arises because the interests of the users of information may be different from that of the interests of those responsible for providing information.
a. True
b. False
ANSWER: True
POINTS: 1
NATIONAL STANDARDS: United States – BUSPORG: Analytic
STATE STANDARDS: United States – AK – AICPA BB-Critical thinking
TOPICS: Demand for Assurances

2. A financial statement audit is a systematic process of objectively obtaining and evaluating evidence.
a. True
b. False
ANSWER: True
POINTS: 1
NATIONAL STANDARDS: United States – BUSPORG: Analytic
STATE STANDARDS: United States – AK – AICPA BB-Critical thinking
TOPICS: Auditing Defined

3. Auditors should conduct their work with an attitude of professional skepticism.
a. True
b. False
ANSWER: True
POINTS: 1
NATIONAL STANDARDS: United States – BUSPORG: Analytic
STATE STANDARDS: United States – AK – AICPA BB-Critical thinking
TOPICS: Auditing Defined

4. A bank using Milton Company’s financial statements to determine the creditworthiness of a potential loan to Milton is a good example of the need for unbiased reporting.
a. True
b. False
ANSWER: True
POINTS: 1
NATIONAL STANDARDS: United States – BUSPORG: Analytic
STATE STANDARDS: United States – AK – AICPA BB-Critical thinking
TOPICS: Auditing Defined

5. An integrated audit requires the auditor to assess the effectiveness of internal controls.
a. True
b. False
ANSWER: True
POINTS: 1
NATIONAL STANDARDS: United States – BUSPORG: Analytic
STATE STANDARDS: United States – AK – AICPA BB-Critical thinking
TOPICS: Auditing Defined

6. In all states, a CPA must have completed at least 150 hours of college semester hours to receive their license.
a. True
b. False
ANSWER: False
POINTS: 1
NATIONAL STANDARDS: United States – BUSPORG: Analytic
STATE STANDARDS: United States – AK – AICPA BB-Critical thinking
TOPICS: Professional and Regulatory Organizations

7. The Center for Audit Quality was started by the International Federation of Accountants.
a. True
b. False
ANSWER: False
POINTS: 1
NATIONAL STANDARDS: United States – BUSPORG: Analytic
STATE STANDARDS: United States – AK – AICPA BB-Critical thinking
TOPICS: Professional and Regulatory Organizations

8. The Center for Audit Quality has the primary authority to set auditing standards.
a. True
b. False
ANSWER: False
POINTS: 1
NATIONAL STANDARDS: United States – BUSPORG: Analytic
STATE STANDARDS: United States – AK – AICPA BB-Critical thinking
TOPICS: Professional and Regulatory Organizations

9. In an audit, management is considered the “client”.
a. True
b. False
ANSWER: False
POINTS: 1
NATIONAL STANDARDS: United States – BUSPORG: Analytic
STATE STANDARDS: United States – AK – AICPA BB-Critical thinking
TOPICS: Auditing Defined

10. Auditing is the process of attesting to assertions about economic actions and events.
a. True
b. False
ANSWER: True
POINTS: 1
NATIONAL STANDARDS: United States – BUSPORG: Analytic
STATE STANDARDS: United States – AK – AICPA BB-Critical thinking
TOPICS: Auditing Defined

11. Auditing is the process of verifying the accuracy of the financial statements.
a. True
b. False
ANSWER: False
POINTS: 1
NATIONAL STANDARDS: United States – BUSPORG: Analytic
STATE STANDARDS: United States – AK – AICPA BB-Critical thinking
TOPICS: Auditing Defined

12. Management may have incentive to bias financial information, but the various users of the statements are not likely to have conflicting interests in the financial information.
a. True
b. False
ANSWER: False
POINTS: 1
LEARNING OBJECTIVES: AUDT.JOHN.16.01-01 – LO: 01-01
NATIONAL STANDARDS: United States – BUSPORG: Analytic
STATE STANDARDS: United States – AK – AICPA BB-Critical thinking
TOPICS: Overview of the External Auditing Profession

13. Auditing exists because users need unbiased information on which to assess management performance and make economic decisions.
a. True
b. False
ANSWER: True
POINTS: 1
NATIONAL STANDARDS: United States – BUSPORG: Analytic
STATE STANDARDS: United States – AK – AICPA BB-Critical thinking
TOPICS: Auditing Defined

14. A free market can only exist if there is sharing of perfectly reliable information.
a. True
b. False
ANSWER: False
POINTS: 1
NATIONAL STANDARDS: United States – BUSPORG: Analytic
STATE STANDARDS: United States – AK – AICPA BB-Critical thinking
TOPICS: Demand for Assurances

15. Users rely on the auditors’ independent assessment of financial statement presentation because few users have direct knowledge of the company’s operations.
a. True
b. False
ANSWER: True
POINTS: 1
NATIONAL STANDARDS: United States – BUSPORG: Analytic
STATE STANDARDS: United States – AK – AICPA BB-Critical thinking
TOPICS: Demand for Assurances

16. The PCAOB is a public board, appointed by Congress, to provide oversight of the firms that audit public companies registered with the SEC.
a. True
b. False
ANSWER: False
POINTS: 1
NATIONAL STANDARDS: United States – BUSPORG: Analytic
STATE STANDARDS: United States – AK – AICPA BB-Critical thinking
TOPICS: Professional and Regulatory Organizations

17. If the auditor has no reservations about management’s financial statements then the auditor will issue a qualified opinion.
a. True
b. False
ANSWER: False
POINTS: 1
NATIONAL STANDARDS: United States – BUSPORG: Analytic
STATE STANDARDS: United States – AK – AICPA BB-Critical thinking
TOPICS: Auditing Defined

18. Independence is often referred to as the cornerstone of the auditing profession.
a. True
b. False
ANSWER: True
POINTS: 1
LEARNING OBJECTIVES: AUDT.JOHN.16.01-01 – LO: 01-01
NATIONAL STANDARDS: United States – BUSPORG: Analytic
STATE STANDARDS: United States – AK – AICPA BB-Critical thinking
TOPICS: Overview of the External Auditing Profession

19. Audits of publicly traded companies must be performed by multinational accounting firms.
a. True
b. False
ANSWER: False
POINTS: 1
LEARNING OBJECTIVES: AUDT.JOHN.16.01-03 – LO: 01-03
NATIONAL STANDARDS: United States – BUSPORG: Analytic
STATE STANDARDS: United States – AK – AICPA BB-Critical thinking
TOPICS: Types of Audit Service Providers and the Skills and Knowledge Needed by Professionals

20. Auditors generally need quantitative and mathematical skillsets more than they need communication and leadership skills.
a. True
b. False
ANSWER: False
POINTS: 1
LEARNING OBJECTIVES: AUDT.JOHN.16.01-03 – LO: 01-03
NATIONAL STANDARDS: United States – BUSPORG: Analytic
STATE STANDARDS: United States – AK – AICPA BB-Critical thinking
TOPICS: Types of Audit Service Providers and the Skills and Knowledge Needed by Professionals

21. The overall objective of an audit is to obtain assurance whether the financial statements are free of misstatement.
a. True
b. False
ANSWER: False
POINTS: 1
LEARNING OBJECTIVES: AUDT.JOHN.16.01-01 – LO: 01-01
NATIONAL STANDARDS: United States – BUSPORG: Analytic
STATE STANDARDS: United States – AK – AICPA BB-Critical thinking
TOPICS: Overview of the External Auditing Profession

22. Bondholders are one of the users of financial statements.
a. True
b. False
ANSWER: True
POINTS: 1
NATIONAL STANDARDS: United States – BUSPORG: Analytic
STATE STANDARDS: United States – AK – AICPA BB-Critical thinking
TOPICS: Scope of Services

23. A key responsibility of the internal audit function is to provide assurance on the reliability of financial reporting to external stakeholders of a company.
a. True
b. False
ANSWER: False
POINTS: 1
LEARNING OBJECTIVES: AUDT.JOHN.16.01-02 – LO: 01-02
NATIONAL STANDARDS: United States – BUSPORG: Analytic
STATE STANDARDS: United States – AK – AICPA BB-Critical thinking
TOPICS: Parties Involved in Preparing and Auditing Financial Statements

24. The Public Company Accounting Oversight Board provides the criteria against which the auditor measures the fairness of financial statement presentation.
a. True
b. False
ANSWER: False
POINTS: 1
NATIONAL STANDARDS: United States – BUSPORG: Analytic
STATE STANDARDS: United States – AK – AICPA BB-Critical thinking
TOPICS: Professional and Regulatory Organizations

25. The FASB is responsible for creating International Financial Reporting Standards.
a. True
b. False
ANSWER: False
POINTS: 1
LEARNING OBJECTIVES: AUDT.JOHN.16.01-04 – LO: 01-04
NATIONAL STANDARDS: United States – BUSPORG: Analytic
STATE STANDARDS: United States – AK – AICPA BB-Critical thinking
TOPICS: Organizations Affecting the External Auditing Profession

26. External auditors frequently serve on the audit committees of their clients.
a. True
b. False
ANSWER: False
POINTS: 1
NATIONAL STANDARDS: United States – BUSPORG: Analytic
STATE STANDARDS: United States – AK – AICPA BB-Critical thinking
TOPICS: The Providers of Assurance Services

27. CPA certificates for auditors are issued by state boards of accountancy.
a. True
b. False
ANSWER: True
POINTS: 1
NATIONAL STANDARDS: United States – BUSPORG: Analytic
STATE STANDARDS: United States – AK – AICPA BB-Critical thinking
TOPICS: Professional and Regulatory Organizations

28. Internal controls are the responsibility of management.
a. True
b. False
ANSWER: True
POINTS: 1
NATIONAL STANDARDS: United States – BUSPORG: Analytic
STATE STANDARDS: United States – AK – AICPA BB-Critical thinking
TOPICS: Auditing Defined

29. The court system acts as a deterrent to quality controls for the auditing profession.
a. True
b. False
ANSWER: False
POINTS: 1
LEARNING OBJECTIVES: AUDT.JOHN.16.01-04 – LO: 01-04
NATIONAL STANDARDS: United States – BUSPORG: Analytic
STATE STANDARDS: United States – AK – AICPA BB-Critical thinking
TOPICS: Organizations Affecting the External Auditing Profession

30. The SEC is the governmental body with the oversight responsibility for the efficient operation of capital markets in the United States.
a. True
b. False
ANSWER: True
POINTS: 1
NATIONAL STANDARDS: United States – BUSPORG: Analytic
STATE STANDARDS: United States – AK – AICPA BB-Critical thinking
TOPICS: Professional and Regulatory Organizations

31. Audit firm culture is one of the primary drivers of audit quality.
a. True
b. False
ANSWER: True
POINTS: 1
LEARNING OBJECTIVES: AUDT.JOHN.16.01-05 – LO: 01-05
NATIONAL STANDARDS: United States – BUSPORG: Analytic
STATE STANDARDS: United States – AK – AICPA BB-Critical thinking
TOPICS: Audit Quality

32. Effective audit processes, by themselves, are sufficient to achieve audit quality.
a. True
b. False
ANSWER: False
POINTS: 1
LEARNING OBJECTIVES: AUDT.JOHN.16.01-05 – LO: 01-05
NATIONAL STANDARDS: United States – BUSPORG: Analytic
STATE STANDARDS: United States – AK – AICPA BB-Critical thinking
TOPICS: Audit Quality

33. Only the Big 4 audit firms can conduct audits of private companies in the United States.
a. True
b. False
ANSWER: False
POINTS: 1
NATIONAL STANDARDS: United States – BUSPORG: Analytic
STATE STANDARDS: United States – AK – AICPA BB-Critical thinking
TOPICS: Professional and Regulatory Organizations

34. The American Institute of CPAs sets auditing standards for non-publicly traded companies.
a. True
b. False
ANSWER: True
POINTS: 1
NATIONAL STANDARDS: United States – BUSPORG: Analytic
STATE STANDARDS: United States – AK – AICPA BB-Critical thinking
TOPICS: Professional and Regulatory Organizations

35. Though often relying on the FASB, the SEC has authority to establish GAAP for publicly traded companies.
a. True
b. False
ANSWER: True
POINTS: 1
NATIONAL STANDARDS: United States – BUSPORG: Analytic
STATE STANDARDS: United States – AK – AICPA BB-Critical thinking
TOPICS: Professional and Regulatory Organizations

36. The SEC has authority to establish GAAP for all business enterprises.
a. True
b. False
ANSWER: False
POINTS: 1
NATIONAL STANDARDS: United States – BUSPORG: Analytic
STATE STANDARDS: United States – AK – AICPA BB-Critical thinking
TOPICS: Professional and Regulatory Organizations

37. The Public Company Accounting Oversight Board was established by the AICPA in response to Securities laws.
a. True
b. False
ANSWER: False
POINTS: 1
NATIONAL STANDARDS: United States – BUSPORG: Analytic
STATE STANDARDS: United States – AK – AICPA BB-Critical thinking
TOPICS: Professional and Regulatory Organizations

38. The Center for Audit Quality is responsible for the oversight of the peer review process for registered audit firms.
a. True
b. False
ANSWER: False
POINTS: 1
LEARNING OBJECTIVES: AUDT.JOHN.16.01-06 – LO: 01-06
NATIONAL STANDARDS: United States – BUSPORG: Analytic
STATE STANDARDS: United States – AK – AICPA BB-Critical thinking
TOPICS: Achieving Audit Quality

39. The SEC provides annual reports to the PCAOB.
a. True
b. False
ANSWER: False
POINTS: 1
NATIONAL STANDARDS: United States – BUSPORG: Analytic
STATE STANDARDS: United States – AK – AICPA BB-Critical thinking
TOPICS: Professional and Regulatory Organizations