Question 1: What is the primary purpose of an audit according to generally accepted auditing standards (GAAS)?
A) To prepare financial statements for external stakeholders.
B) To provide assurance on the fairness of financial statements.
C) To ensure compliance with tax regulations.
D) To assess management's competency in financial reporting.
Correct Answer: B To provide assurance on the fairness of financial statements.
Explanation: Option B is correct. According to AU-C Section .01, the purpose of an audit is to provide financial statement users with an opinion by the auditor on whether the financial statements are presented fairly, in all material respects, in accordance with the applicable financial reporting framework. This enhances users' confidence in the financial statements.
Reference: AU-C Section .01
Question 6: What is the premise upon which an audit is conducted according to generally accepted auditing standards (GAAS)?
A) Management has sole responsibility for the preparation of financial statements.
B) Management and, when appropriate, those charged with governance, have responsibility for various aspects related to financial reporting.
C) Auditors have unlimited access to financial records without any restrictions.
D) Auditors have the sole responsibility for the design and implementation of internal control systems.
Correct Answer: B Management and, when appropriate, those charged with governance, have responsibility for various aspects related to financial reporting.
Explanation: Option B is correct. According to AU-C Section .02, the premise upon which an audit is conducted is that management and, when appropriate, those charged with governance, have responsibility for the preparation and fair presentation of financial statements, the design and implementation of internal control, and providing auditors with access to relevant information.
Reference: AU-C Section .02
Question 2: What level of assurance does an auditor aim to obtain during an audit?
A) Absolute assurance
B) Reasonable assurance
C) Limited assurance
D) Moderate assurance
Correct Answer: B Reasonable assurance
Explanation: Option B is correct. According to AU-C Section .04, auditors aim to obtain reasonable assurance, which is a high, but not absolute, level of assurance, that the financial statements as a whole are free from material misstatement, whether due to fraud or error.
Reference: AU-C Section .04