Chapter1

1. True or False (Correct the false ones):

1. Auditing aims to record and summarize

economic events to provide financial
information.

2. One way to reduce information risk is for the

user to share responsibility with management.

3. The audit report is prepared at the beginning

of the auditing process.

4. CPAs can provide both assurance and

nonassurance services.

5. Financial statement audit is considered a

type of attestation service.

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2. Multiple Choice (Choose the correct

answer):

1. Which of the following is not a source of

audit evidence?
a. Auditor’s observations
b. Client testimony
c. Market forecasts
d. Transaction data

2. Which of the following is not considered an

assurance service?
a. Audit of financial statements
b. Tax return preparation
c. Review of internal controls
d. Evaluation of operational efficiency

3. Who holds the primary responsibility for

reducing information risk?
a. Investor
b. Accountant
c. Management
d. Government regulators

4. Which of the following is not a cause of high

information risk?
a. Provider’s bias and motives
b. Simplicity of accounting procedures
c. Remoteness of information
d. High volume of data

5. Which of the following is part of a GAO

auditor’s role?
a. Auditing tax returns
b. Auditing financial statements of public
companies
c. Auditing government agencies’ compliance
d. Consulting services for private companies
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3. Short Essay (Brief and clear answers):

1. What is the difference between auditing and

accounting?

2. Explain two reasons why information risk

exists.

3. Name and briefly describe two types of

audits performed by CPA firms.

4. What are the main requirements to become

a CPA?

5. How does auditing help reduce information

risk?

1. True or False (with corrections):

1. False – This is the definition of accounting,

not auditing.
Correction: Auditing is the accumulation and
evaluation of evidence to determine the degree
of correspondence between information and
established criteria.
2. True – Sharing the responsibility with
management is one method to reduce
information risk.

3. False – The audit report is prepared at the

end of the auditing process.
Correction: It is the final stage that
communicates the auditor’s findings.

4. True – CPAs can provide both assurance

and nonassurance services.

5. True – Financial statement audits fall under

attestation services.

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2. Multiple Choice:

1. c. Market forecasts – These are not a

source of audit evidence.

2. b. Tax return preparation – This is a

nonassurance service.

3. c. Management – Management is
responsible for providing reliable information.
4. b. Simplicity of accounting procedures –
Simplicity would actually lower risk, not cause
it.

5. c. Auditing government agencies’

compliance – This is part of the GAO auditor’s
duties.

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3. Short Essay (Brief answers):

1. Difference between auditing and accounting:

Accounting is about recording and

summarizing financial transactions.

Auditing evaluates whether financial

information accurately reflects economic
events and follows specific criteria.

2. Two reasons why information risk exists:

Remoteness of information: Users often rely

on info provided by others.

Bias/motive of provider: The info may be

presented in a way that favors the provider.
3. Two types of audits:

Operational audit: Assesses efficiency and

effectiveness.

Financial statement audit: Checks if financial

statements follow accounting standards.

4. Main CPA requirements:

Education

Passing the Uniform CPA Exam

Practical Experience (varies by state)

5. How auditing reduces information risk:

By providing independent verification of

financial information, auditors increase its
reliability and help users make better
decisions.Multiple Choice (‫)اﺧﺘﻴﺎر ﻣﻦ ﻣﺘﻌﺪد‬:
Chapter 2
1. Jeanine’s contribution in the Solberg Paints
audit highlights which of the following key
professional values in auditing?
✔ C. Value-added advisory role of auditors

2. Which of the following best explains why

CPA firms are structured in hierarchical levels
(partner, manager, senior, assistant)?
✔ C. To ensure competence through
supervision and review

3. The Sarbanes–Oxley Act established the

PCAOB to:
✔ C. Oversee the auditors of public companies

4. A small local CPA firm decides to merge

with a larger regional firm. Which quality
control element is most likely to be directly
impacted by this decision?
✔ D. Client acceptance and continuance

True or False (‫)ﺻﺢ أو ﺧﻄﺄ‬:

5. All CPA firms in the U.S. are required by

federal law to organize as Limited Liability
Partnerships.
✖ False

6. The AICPA can enforce mandatory peer

reviews for all CPA firms, regardless of their
membership status.
✖ False

7. Auditing standards provide specific

instructions for choosing sample sizes during
audits.
false

8. Explain how the concept of independence

affects the structure and operations of CPA
firms.
Independence shapes CPA firms by requiring
rotation, avoiding conflicts of interest, and
separating audit from consulting to stay
objective and trustworthy.

9. Why is there a need for three sets of auditing

standards (GAAS, PCAOB, ISAs)? What
challenges could arise from this?
There are three sets of standards because they
apply to different types of companies. This
creates confusion, extra work, and challenges
for international firms.

10. How did the Bernie Madoff scandal

contribute to changes in peer review
regulations? What does this reveal about
weaknesses in audit oversight?
The Bernie Madoff scandal showed weak audit
oversight. It led to stricter peer reviews and
highlighted the need for better regulation and
auditor independence.

chapter 3

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Multiple Choice Questions (MCQs):

1. Which of the following would require a

qualified opinion?
A. The auditor lacks independence
B. A material GAAP violation that is not
pervasive
C. All financial statements are fairly stated
D. The auditor agrees with a justified change in
accounting principle
Answer: B

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2. The phrase "in our opinion" in the audit

report emphasizes that:
A. The audit guarantees accuracy
B. The audit provides absolute assurance
C. The audit is based on the auditor’s
professional judgment
D. The financial statements are perfect
Answer: C

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3. If the auditor concludes that the financial

statements are not fairly presented due to a
highly material GAAP violation, the appropriate
report is:
A. Qualified opinion
B. Disclaimer of opinion
C. Adverse opinion
D. Standard unqualified opinion
Answer: C

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4. When an auditor is unable to obtain

sufficient appropriate audit evidence due to a
severe scope limitation, they should issue:
A. Qualified opinion
B. Unqualified opinion
C. Disclaimer of opinion
D. Adverse opinion
Answer: C

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5. An explanatory paragraph is required in

which of the following cases?
A. The auditor lacks independence
B. A standard clean report is issued
C. There is substantial doubt about going
concern
D. The auditor issues a disclaimer
Answer: C

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True or False Questions:

1. The scope paragraph is removed from the

audit report when a disclaimer of opinion is
issued due to lack of evidence.
Answer: True

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2. If a client omits the statement of cash flows,

the auditor can still issue an unqualified
opinion.
Answer: False – This requires a qualified
opinion.

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3. A change from one acceptable accounting
principle to another, if properly disclosed, does
not require any change in the audit report.
Answer: False – It requires an explanatory
paragraph.

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4. Materiality affects both the auditor’s

decision on the type of opinion and whether an
issue needs to be mentioned at all.
Answer: True

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5. A shared audit report (with another CPA

firm) always results in a qualified opinion.
Answer: False – It may still be unqualified with
modified wording.
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1. Why must the audit report title include the

word "Independent"?
To show that the auditor is unbiased and
objective.

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2. When is the phrase "except for" used in audit

reports?
In a qualified opinion when the issue is
material but not pervasive.
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3. What is the difference between consistency

and comparability in audit reports?
Consistency affects the report; comparability
only requires footnote disclosure.

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4. Why might an auditor add an explanatory

paragraph to an unmodified report?
To highlight important matters like related
parties or going concern doubts.

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5. When is a disclaimer of opinion issued?

When the auditor lacks sufficient evidence or is
not independent.

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6. What does "reasonable assurance" mean in

the scope paragraph?
It means the auditor provides high, but not
absolute, assurance.

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7. Why is the scope paragraph omitted in a

disclaimer of opinion?
To avoid implying the auditor performed a full
audit.