1-21 Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Chapter 01 Auditing and Assurance Services Answer Key Multiple Choice Questions 1. The audit objective that all transactions and accounts that should be presented in the financial statements are in fact included is related to which of the PCAOB assertions? A. Existence B. Rights and obligations C. Completeness D. Valuation AACSB: Analytic AICPA: BB Legal AICPA: FN Research Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 01-03 Describe and define the assertions that management makes about the recognition; measurement; presentation; and disclosure of the financial statements and explain why auditors use them as the focal point of the audit. Source: Original Topic: Management's Financial Statement Assertions 2. Cutoff tests designed to detect purchases made before the end of the year that have been recorded in the subsequent year provide assurance about management's assertion of A. presentation and Disclosure. B. completeness. C. rights and obligations. D. existence. AACSB: Analytic AICPA: BB Legal AICPA: FN Research Accessibility: Keyboard Navigation Blooms: Remember1-22 Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Difficulty: 2 Medium Learning Objective: 01-03 Describe and define the assertions that management makes about the recognition; measurement; presentation; and disclosure of the financial statements and explain why auditors use them as the focal point of the audit. Source: Original Topic: Management's Financial Statement Assertions 3. During an audit of an entity's stockholders' equity accounts, the auditor determines whether there are restrictions on retained earnings resulting from loans, agreements or state law. This audit procedure most likely is intended to verify management's assertion of A. existence or occurrence. B. completeness. C. valuation or allocation. D. presentation and disclosure. AACSB: Analytic AICPA: BB Legal AICPA: FN Research Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 01-03 Describe and define the assertions that management makes about the recognition; measurement; presentation; and disclosure of the financial statements and explain why auditors use them as the focal point of the audit. Source: Original Topic: Management's Financial Statement Assertions 4. The confirmation of an account payable balance selected from the general ledger provides primary evidence regarding which management assertion? A. Completeness B. Valuation C. Allocation D. Existence AACSB: Analytic AICPA: BB Legal AICPA: FN Research Accessibility: Keyboard Navigation1-23 Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Blooms: Remember Difficulty: 2 Medium Learning Objective: 01-03 Describe and define the assertions that management makes about the recognition; measurement; presentation; and disclosure of the financial statements and explain why auditors use them as the focal point of the audit. Source: Original Topic: Management's Financial Statement Assertions 5. What type of evidence would provide the highest level of assurance in an attestation engagement? A. Evidence secured solely from within the entity. B. Evidence obtained from independent sources. C. Evidence obtained indirectly. D. Evidence obtained from multiple internal inquiries. AACSB: Analytic AICPA: BB Legal AICPA: FN Research Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 3 Hard Learning Objective: 01-02 Define and contrast financial statement auditing; attestation; and assurance services. Source: AICPA Topic: Auditing, Attestation, and Assurance Services 6. Which of the following management assertions is an auditor most likely testing if the audit objective states that all inventory on hand is reflected in the ending inventory balance? A. The entity has rights to the inventory. B. Inventory is properly valued. C. Inventory is properly presented in the financial statements. D. Inventory is complete. AACSB: Analytic AICPA: BB Legal AICPA: FN Research Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 3 Hard Learning Objective: 01-03 Describe and define the assertions that management makes about the recognition;1-24 Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. measurement; presentation; and disclosure of the financial statements and explain why auditors use them as the focal point of the audit. Source: AICPA Topic: Management's Financial Statement Assertions 7. An auditor traces the serial numbers on equipment to a nonissuer's sub-ledger. Which of the following management assertions is supported by this test? A. Valuation and allocation. B. Completeness. C. Rights and obligations. D. Presentation and disclosure. AACSB: Analytic AICPA: BB Legal AICPA: FN Research Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 3 Hard Learning Objective: 01-03 Describe and define the assertions that management makes about the recognition; measurement; presentation; and disclosure of the financial statements and explain why auditors use them as the focal point of the audit. Source: AICPA Topic: Management's Financial Statement Assertions 8. An auditor has substantial doubt about the entity's ability to continue as a going concern for a reasonable period of time because of negative cash flows and working capital deficiencies. Under these circumstances, the auditor would be most concerned about the A. control environment factors that affect the organizational structure. B. correlation of detection risk and inherent risk. C. effectiveness of the entity's internal control activities. D. possible effects on the entity's financial statements. AACSB: Analytic AICPA: BB Legal AICPA: FN Research Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 3 Hard Learning Objective: 01-03 Describe and define the assertions that management makes about the recognition;1-25 Copyright © 2018