Auditing: A Practical Approach 4th Canadian Edition by Robyn Moroney Test bank

CPA Competency: Audit and Assurance
AACSB: Analytic
 
 
59. Under the Canada Business Corporations Act, the auditor has a responsibility to form an opinion on the company’s
 
a) operations.
b) independence.
c) financial statements.
d) tax calculation.
 
Answer: c
 
Bloomcode: Knowledge
Difficulty: Easy
Learning Objective: Identify the different regulators, legislation, and regulations surrounding the assurance process.
Section Reference: 1.7 The role of regulators and regulations
CPA Competency: Audit and Assurance
AACSB: Analytic
 
 
60. The expectation gap is caused by
 
a) realistic auditor expectations.
b) unrealistic user expectations.
c) realistic user expectations.
d) unrealistic auditor expectations.
 
Answer: b

Bloomcode: Knowledge
Difficulty: Easy
Learning Objective: Describe the audit expectation gap.
Section Reference: 1.8 The audit expectation gap
CPA Competency: Audit and Assurance
AACSB: Analytic
 
 
61. The expectation gap cannot be reduced by
 
a) auditors performing their duties properly.
b) enhanced reporting to explain what processes have been followed in arriving at an audit or a review opinion.
c) assurance providers reporting accurately the level of assurance being provided.
d) management preparing the financial statements.
 
Answer: d
 
Bloomcode: Comprehension
Difficulty: Easy
Learning Objective: Describe the audit expectation gap.
Section Reference: 1.8 The audit expectation gap
CPA Competency: Audit and Assurance
AACSB: Analytic
 
 
62. The audit expectation gap is the difference in the expectations of the
 
a) assurance providers and the financial statement users.
b) assurance providers and the audit client.
c) audit client and the financial report or other users.
d) audit client and the regulator.
 
Answer: a
 
Bloomcode: Knowledge
Difficulty: Easy
Learning Objective: Describe the audit expectation gap.
Section Reference: 1.8 The audit expectation gap
CPA Competency: Audit and Assurance
AACSB: Analytic
 
 
SHORT ANSWER QUESTIONS
 
 
63. Indicate whether you agree or disagree with the following statements and explain your reasoning.
 
a) Maurice Lecuyer feels that an internal auditor that reports to the chief financial officer of the company can be as independent as an auditor that reports to the audit committee.
 
b) Jillian Humphrey discovered a very material overstatement in the financial statements of Humphrey’s Holistic Medicine.  She felt that the misstatement would have an impact on the decisions of users of the financial statements, and indicated to her audit senior that she would be including it as an “emphasis of matter” paragraph in the audit report.
 
c) An auditor is responsible for the preparation and fair presentation of the financial statements in accordance with International Financial Reporting Standards, and for such internal control as is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
 
d) An assurance engagement involves evaluation or measurement of subject matter against criteria.
 
Answer:
a) Disagree. The internal auditor’s independence is protected best when they report to the highest level of governance, usually the Audit Committee of the Board or to the President of the company.
 
b) Disagree. The pervasiveness of the material misstatement will require an adverse opinion. In this case, the misstatements affect the financial statements materially and will require disclosures that are vital to a user’s understanding of the financial statements. When statements are pervasively and materially misstated, an adverse opinion is appropriate.
 
c) Disagree. The above statement describes management’s responsibilities. An auditor has the responsibility to express an opinion on financial statements based on an audit.
 
d) Agree. An assurance engagement is an engagement where a practitioner issues a written report and concludes on a subject matter for which the accountable party is responsible. Therefore, a prerequisite for an assurance engagement is the existence of an accountability relationship, where one party is answerable to another for the subject matter.
 
Bloomcode: Application
Difficulty: Medium
Learning Objective: Define an assurance engagement.
Learning Objective: Differentiate between types of assurance services.