1.

In determining the primary responsibility of the external auditor for an audit of a

company‟s financial statements, the auditor owes primary allegiance to:
A. the management of the audit client because the auditor is hired and paid by
management.
B. the audit committee of the audit client because that committee is responsible for
coordinating and reviewing all audit activities within the company.
C. stockholders, creditors, and the investing public.
D. the Auditing and Assurance Standards Council, because it determines auditing
standards and auditor‟s responsibility.

2. Which of the following would not represent one of the primary problems that would lead the
users to demand for independent audits of a company‟s financial statements?
A. Management bias in preparing financial statements.
B. The downsizing of business and financial markets.
C. The complexity of transactions affecting financial statements.
D. The remoteness of the user from the organization and thus the inability of the user to
directly obtain financial information from the company.
3. Assurance services involve all the following except:
A. improving the quality of information for decision purposes.
B. improving the quality of the decision model used.
C. improving the relevance of information.
D. implementing a system that improves the processing of information.
4. Which of the following is the broadest and most inclusive concept?
A. Audits of financial statements.
B. Internal control audit.
C. Assurance services.
D. Compilation services.
5. Which of the following is a correct statement?
A. An audit provides limited assurance by attesting to the fairness of the
client‟s assertions.
B. A review provides positive assurance by attesting the reliability of the
client‟s assertions.
C. Management consulting services provide attestation in all cases.
D. Accounting services do not provide attestation.
6. Unlike consulting services, assurance services:
A. make recommendation to management
B. report on how to use information
C. report on the quality of information
D. are two-party contracts.
7. Financial statements audits:
A. reduce the cost of capital
B. report on compliance with laws and regulations
C. assess management„s efficiency
D. overlook information risk

8. A summary of findings rather than assurance is most likely to be included in a(n):

 A. Agreed-upon procedures report
B. Compilation report
C. Examination report
D. Review report
9. The risk associated with a company's survival and profitability is referred to as:
A. Business Risk
B. Information Risk
C. Detection Risk
D. Control Risk
10. An engagement in which a CPA firm arranges for a critical review of its practices by another
CPA firm is referred to as a(n):
A. Peer Review Engagement
B. Quality Control Engagement
C. Quality Assurance Engagement
D. Attestation Engagement
11. Attestation risk is limited to a low level in which of the following engagement(s)?
A. Both examinations and reviews
B. Examinations, but not reviews
C. Reviews, but not examinations
D. Neither examinations nor reviews
12. .An operational audit differs in many ways from an audit of financial statements. Which of
the following is the best example of one of these differences?
A. The usual audit of financial statements covers the four basic statements, whereas the
operational audit is usually limited to either the balance sheet or the income statement
B. The boundaries of an operational audit are often drawn from an organization chart and
are not limited to a single accounting period
C. Operational audits do not ordinarily result in the preparation of a report
D. The operational audit deals with pre-tax income
13. The review of a company's financial statements by a CPA firm:
A. Is substantially less in scope of procedures than an audit
B. Requires detailed analysis of the major accounts
C. Is of similar scope as an audit and adds similar credibility to the statements
D. Culminates in issuance of a report expressing the CPA's opinion as to the fairness of
the statements

14. When performing an engagement to review a nonpublic entity's financial statements, an

accountant most likely would:
A. Obtain an understanding of the entity's internal control.
B. Limit the distribution of the accountant's report.
C. Confirm a sample of significant accounts receivable balances.
D. Ask about actions taken at board of directors' meetings.
15. Which of the following professionals has primary responsibility for the performance of an
audit?
A. The managing partner of the firm
B. The senior assigned to the engagement
C. The manager assigned to the engagement
D. The partner in charge of the engagement

16. Assurance services may include which of the following?

 A. attesting to financial statements
B. examination of the economy and efficiency of governmental operations
C. evaluation of a division's performance for management
D. all of the given choices
17. The auditor of financial statements must make very difficult interpretations regarding
authoritative literature. Additionally, the auditor must
A. proceed beyond PFRS to assess how the economic activity is portrayed in the financial
statements.
B. force management to make certain decisions regarding their financial statements.
C. disregard independence in order to find the underlying truth of the evidence.
D. establish new criteria by which financial statements may be compared.
18. Which one of the following is not a part of the attest process?
A. gathering evidence about assertions
B. proving the accuracy of the books and records
C. evaluating evidence against objective criteria
communicating the conclusions reached