Objectives  be competent to know the types and amount of evidence

to accumulate.
1. Describe auditing.  have an independent mental attitude.
2. Distinguish between auditing and accounting.  possess a, b, and c.
3. Explain the importance of auditing in reducing
information risk. 3. Because external auditors are paid fees by their
4. List the causes of information risk, and explain how clients, external auditors.
this risk may be reduced.  are absolutely independent and may conduct audits.
5. Describe assurance services and distinguish audit  may be sufficiently independent to conduct audits.
services from other assurance and nonassurance  are never considered to be independent.
services provided by CPAs.  must receive approval of the Securities and Exchange
6. Differentiate the three main types of audits. Commission before conducting audits.
7. Identify the primary types of auditors.
8. Describe the requirements for becoming a CPA.
4. In all cases, audit reports must
 be signed by the individual who performed the audit
True or False
procedures.
 certify the accuracy of the quantitative information which
1. Auditing is the recording, classifying, and summarizing of
was audited.
economic events for the purpose of providing financial
 inform readers of the degree of correspondence between
information for decision making.
the quantifiable information and the established criteria.
 True
 communicate the auditor's findings to the general public.
 False
2. Evidence is defined as any information used by the auditor
to determine whether the information being audited is 5. The General Accounting Office reports to and is solely
stated in accordance with established criteria. responsible to:
 True  the AICPA.
 False  the SEC.
3. Accounting is the accumulation and evaluation of evidence  the various governmental agencies that contract with the
about information to determine and report on the degree of GAO for services.
correspondence between the information and established  the US Congress.
criteria.
 True 6. The possibility that a company will not be able to
 False repay a loan because of economic or business
4. An operational audit is a review of an organization's conditions is known as business risk?
operating procedures for the purpose of evaluating  Audit.
efficiency and effectiveness.  Review.
 True  Information verification.
 False  Each of the above provides the same level of assurance.
5. The provisions of the Sarbanes-Oxley Act apply to all public
companies and certain select privately-held companies. 7. Which of the following is an example of an
 True operational audit?
 False  IBM Corporation's tax returns are examined by Internal
6. The possibility that a company will not be able to repay a Revenue Service auditors.
loan because of economic or business conditions is known  The efficiency and effectiveness of the Food and Drug
as business risk. Administration's computer systems are evaluated by
 True GAO auditors.
 False  GTE corporation's internal auditors examine whether
7. Section 404 of the Sarbanes-Oxley Act requires a GTE's employees have been following the company's
company’s management and its independent auditors to established payroll authorization procedures.
report on the effectiveness of internal control over financial  Ace Hardware Corporation's annual financial statements
reporting. are audited by an independent CPA firm..
 True
 False
8. Which of the following is a cause of information risk?
8. All for-profit business entities are required to have an  Voluminous data.
annual audit of their financial statements.  Biases and motives of the provider of information.
 True
 Remoteness of information.
 False
 Each of the above is a cause of information risk.
9. To perform an audit, information must be available in a
verifiable form and at least two sets of standards must be
used to evaluate the information. 9. The Sarbanes-Oxley Act establishes
 True  that management must assess the effectiveness of
 False internal control over financial reporting and provides
10. A review of historical financial statements provides less criteria for the assessment.
assurance than an audit of historical financial statements.  that auditors must assess the effectiveness of internal
 True control over financial reporting and provides criteria for
 False the assessment.
 that management must assess the effectiveness of
Multiple Choices internal control over financial reporting and provides no
criteria for the assessment.
1. Evidence is defined as any information used by the  that management and auditors must assess the
auditor to determine whether the quantifiable effectiveness of internal control over financial reporting
information being audited is stated in accordance and provides criteria for the assessment.
with the established criteria. Evidence takes many
different forms, including. 10. Which of the following financial statements is least
 oral testimony of the auditee (client). likely to be included in an independent audit of
 written communication with outsiders. financial statements?
 observations by the auditor.  Statement of financial position.
 all of the above.  Income statement.
 The statement of cash flows.
2. The auditor must.  Each of the above is equally likely to be included.
 be qualified to understand the criteria used.