Auditing: A Practical Approach with Data Analytics 2nd Edition Davis Study Guide, Exams of Auditing

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TEST BANK for Auditing: A Practical

Approach with Data Analytics 2nd

Edition by Laura Davis Wiley,

Raymond N. Johnson and Robyn

Moroney ISBN-. All Chapters 1-

16 (Complete Download).

Table of Contents

Chapter 1: Introduction and Overview of Audit and Assurance

Chapter 2: Professionalism and Professional Responsibilities

Chapter 3: Risk Assessment Part I: Audit Risk and Audit Strategy

Chapter 4: Risk Assessment Part II: Understanding the Client

Chapter 5: Audit Evidence

Chapter 6: Gaining an Understanding of the Client's System of

Internal Control

Chapter 7: Audit Data Analytics

Chapter 8: Risk Response: Performing Tests of Controls

Chapter 9: Risk Response: Performing Substantive Procedures

Chapter 10: Risk Response: Evaluating Audit Data Analytics

and Audit Sampling

Chapter 11: Auditing the Revenue Process

Chapter 12: Auditing the Purchasing and Payroll Processes

Chapter 1

Introduction and Overview of

Audit

and Assurance

Question Type: True or False

1. GAAP and IFRS are examples of applicable financial reporting framework.

A. True

B. False

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

Communication, Learning Objective: LO1.1, Solution: The applicable financial reporting

framework refers to the set of standards used in preparing the historical financial statements,

such as GAAP, IFRS or a Federal Income Tax Basis of Accounting.

2. Review of financial forecasts falls under attestation services.

A. True

B. False

Answer: A, Taxonomy: Knowledge, Difficulty: Easy, AICPA FC: Measurement Analysis and

4

1. One of the reasons there is a demand for financial statement audits is that users of financial statements often lack accounting and legal knowledge to fully understand complex accounting and disclosure choices. A. True B. False

Answer: A, Taxonomy: Comprehension, Difficulty: Easy, AICPA PC: Communication, AACSB:

Analytic, Learning Objective: LO1.3, Solution: Complexity: Financial statements are complex, the

amounts are often affected by significant estimates, and the disclosures often require significant

knowledge and experience to evaluate. Most financial statement users do not have the

accounting and legal knowledge to assess the reasonableness of complex accounting and

disclosure choices being made by the company.

1. In financial accounting, the balance sheet is a statement of financial position A. True B. False

Answer: A, Taxonomy: Knowledge, Difficulty: Easy, AICPA PC: Communication, AACSB:

Analytic, Learning Objective: LO1.3, Solution: In financial accounting, the financial statements

include the balance sheet (statement of financial position), income statement (statement of

comprehensive income), statement of cash flows, statement of changes in equity and

accompanying notes.

1. Business valuation falls within the purview of non-assurance services. A. True

6

7

information be audited.

1. Neither client characteristics nor actions of the auditor affect the audit risk. A. True B. False

Answer: B, Taxonomy: Knowledge, Difficulty: Easy, AICPA FC: Reporting, AACSB: Ethics,

Learning Objective: LO1.6, Solution: Audit risk is affected by client characteristics as well as

actions of the auditor.

1. Materiality is a relative concept, and it differs from company to company and from year to year for a given company. A. True B. False

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

Learning Objective: LO1.6, Solution: Materiality is a relative concept, and it differs from company

to company and from year to year for a given company. Auditors design an audit to provide

reasonable assurance that the financial statements are free of material misstatement. However,

auditors do not design an audit to look for immaterial misstatements because they would not

influence a financial statement user.

8

1. In an audit report on the effectiveness of ICFR for a public company, the scope paragraph states the different responsibilities of management and auditors. A. True B. False

Answer: B, Taxonomy: Knowledge, Difficulty: Easy, AICPA BB: Governance Perspective,

AACSB:

Communication, Learning Objective: LO1.7, Solution: In an audit report on the effectiveness of

ICFR for a public company, the basis for opinion paragraph states the different responsibilities of

management and auditors. Like the audit report on the financial statements, this paragraph

references registration with the PCAOB and independence requirements of the SEC and other

federal securities laws.

10

1. In an audit report on the effectiveness of ICFR for a public company, the scope paragraph mentions that auditors are only required to obtain reasonable assurance about whether the company maintained, in all material respects, effective ICFR. A. True B. False

Answer: A, Taxonomy: Knowledge, Difficulty: Easy, AICPA BB: Governance Perspective, AACSB:

Communication, Learning Objective: LO1.7, Solution: In an audit report on the effectiveness of

ICFR for a public company, the scope paragraph explains that auditors conducted their audit in

accordance with the standards of the PCAOB. In brief terms, it explains the process of conducting

an audit of the effectiveness of ICFR. It mentions that auditors are only required to obtain

reasonable assurance about whether the company maintained, in all material respects, effective

ICFR. It concludes with a statement that the audit firm believes its audit provides a reasonable

basis for its opinion.

1. A financial statement user‘s expectations are only impacted by legislation. A. True B. False

Answer: B, Taxonomy: Knowledge, Difficulty: Easy, AICPA FC: Measurement Analysis and

Interpretation, AACSB: Communication, Learning Objective: LO1.8, Solution: A financial

statement user‘s expectations are often impacted by audit standards, ethical standards,

regulations, legislation, and firm policy and procedures.

11

Question Type: Multiple choice

1. Identify a service that falls under audit services. A. examination of historical financial statements B. compilation of historical financial statements C. inspection of website security D. review of financial forecast

Answer: A, Taxonomy: Knowledge, Difficulty: Easy, AICPA FC: Measurement Analysis and

Interpretation, AACSB: Ethics, Learning Objective: LO1.1, Solution: Examination of historical

financial statements comes under audit services.

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14 y

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