Chapter 04 Essay Questions
What is the difference between audit risk and engagement risk?
Audit risk is the risk that the auditor may unknowingly fail to appropriately modify the opinion
on financial statements that are materially misstated. It can be dir
Why must an auditor use sampling? What tradeoffs occur when an auditor uses
An auditor must use sampling because to examine every accounting record and all the
supporting documentation would take too much time and money. An audit of a
1. A CPA's father acquired a 10% interest in his son's audit client. The investment is
material to the father's net worth. If the son is aware of his father's investment and the
CPA participates in the audit engagement, is the firm's independence impaired
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Chapter 02 The Financial Statement Auditing Environment Answer Key
True / False Questions
1. A series of business an
Introduction to Assurance services
Know what the purpose of an independent audit is and why it would be helpful to different stakeholders.
Purpose: Objectively look at the claims a company is making on the financial statements to give reasonable
You are an experienced audit senior. The new staff accountant on your audit team does
not understand what a control deficiency is. Give him a definition of "control deficiency."
Include examples of two types of control deficiencies.
A control d
Internal control has become a very important focus for publicly traded and
privately-held companies alike. Internal control is intended to accomplish at least four
objectives and consists of five components of internal control. List the four obj
Audit Risk Model
The risk that an auditor expresses an unqualified opinion on
materially misstated financial statements.
The risk of material misstatement of an assertion without
considering internal control
Audit Evidence and
Relationship between Financial
Statements and Audit report
about components of
a conclusion based
on the evidence
Obtain and review financial information.
Inquire of third parties regarding client integrity.
Communicate with the predecessor auditor.
Consider unusual business or audit risks.
Determine if the firm is independent.
Independence and Objectivity
A member in public practice shall be independent in the
performance of professional services as required by
standards promulgated by bodies designated by Council
Independence of mind. The state of mind t
Introduction to Auditing and
What is auditing?
Auditing is a systematic process of
objectively obtaining and evaluating
evidence regarding assertions about
economic actions and events to ascertain
the degree of correspondence between
Auditing Standards and
Generally Accepted Auditing
Adequate training and
Adequate Planning and supervision
Obtain Sufficient understanding of
1. Sally Thompson's company, Sally's Shoes, is a successful shoe retail business with
one store. Sally would like to expand to two locations, but the bank has asked for an
independent audit before it will provide financing. Sally hires her broth