Chapter 5: Professional Auditing Standards and the Audit Opinion Formulation--True/False Questions

True or False. Auditors of the U.S. public companies should follow the PCAOB's auditing standards.

True.

True or False. The agreed upon terms of an audit engagement should be documented in an audit program.

False. Agreed upon terms of an audit engagement should be documented in an audit engagement letter.

True or False. Once the auditor completes the substantive procedures in Phase IV, the auditor is in a position to issue the audit opinion.

False. Because in Phase V the auditor completes various review and communication activities and makes a decision about what type(s) of opinion(s) should be issued.

True or False. During Risk assessment, the auditor is focused on understanding the risks of all misstatements in the financial statements and related disclosures.

False. During phase 2 the auditor identifies the relevant risks and then determines the audit procedures needed to address those risks.

True or False. If the auditor issues an opinion on the client's internal controls and the client's financial statements, the auditor is required to issue two separate reports.

False. If the auditor issues an opinion on the client's internal controls and the client's financial statements. the opinions can be issued in one report or in two separate reports.

True or False. Risk assessment procedures alone provide sufficient appropriate audit evidence on which to base an audit.

False. Risk assessment procedures do not provide sufficient appropriate evidence on which to base an audit opinion, but are used for purposes of planning the audit.

True or False. There is not much commonality among the auditing standards set by the PCAOB, AICPA, AND IAASB.

False. The AICPA, PCAOB, and IAASB all have a common objective which is to provide a reasonable assurance to the public that audits are conducted in a quality manner

True or False. The ten standards underlying the PCAOB's auditing standards fall with in four different categories.

False. The PCAOB's underlying auditing standards has 3 categories.

True or False. The auditor assesses the risk of material misstatement at only the assertion level.

False. The auditor assesses the risk of material misstatement at both the financial statement level and the assertion level.

True or False. Auditors are encouraged, but not required, to prepare audit documentation.

False. The auditor needs to prepare audit documentation that provides evidence that the audit was planned and performed in accordance with auditing standards.

True or False. When testing controls, the auditor tests only transaction controls.

False. The auditor test both transaction controls and entity wide controls.

True or False. The completeness assertion is typically the more relevant assertion for assets.

False. The auditors identify the most relevant assertions associated with the accounts and disclosures.

True or False. The auditor is expected to obtain evidence about the operating effectiveness of internal control on all audits.

False. To obtain evidence about whether a control is operating effectively, the auditor directly tests the control in operation.

True or False. As a precondition to applying the audit opinion formulation process, the auditor need to understand the client's responsibilities for internal control over financial reporting and the financial statements.

True

True or False. Audit checklists and audit programs are examples of audit documentation

True

True or False. In an integrated audit, the auditor reviews management's documentation of internal control and management's evaluation and findings related to internal control effectiveness.

True

True or False. Substantive procedures include substantive analytical procedures and tests of details.

True

True or False. The audit opinion formulation is described as consisting of five phases.

True

True or False. The auditor is expected to perform substantive procedures for each relevant assertion of each significant account and disclosure.

True

True or False. The auditor's selection of audit procedures depends on the accounts and assertions being tested.

True

True or False. The cycle approach provides a way for breaking the audit up into manageable components.

True

True or False. The purpose of an audit is to enhance the degree of confidence that users place on the financial statements.

True

True or False. The results of the auditor's tests of controls will likely have implications for the substantive procedures the auditor will perform.

True

True or False. U.S. auditing standards require that an auditor communicate with a predecessor auditor for an initial audit engagement.

True

True or False. Within a particular cycle, the auditor focuses on the flow of the transactions within that cycle, including how transactions are initiated, authorized, recorded, and reported.

True

True or False. Within each cycle, the audit is designed to test management assertions.

True