1.One of the fundamental concepts in understanding the value of the audit opinion is reasonable assurance. Which of the following statements regarding reasonable assurance is true?

a) Reasonable assurance implies that the financial statements are plausible or worthy of belief.

b) Reasonable assurance suggests that nothing has come to the public accountant's attention to indicate that the financial information being reported on is not in accordance with the applicable reporting framework.

c) Reasonable assurance suggests that the auditor has obtained an appropriate amount of evidence to provide an opinion that the financial statements are accurate to an absolute level.

d) Reasonable assurance implies that the auditor obtains sufficient appropriate evidence to be able to provide a high level of assurance that the financial statements are free from material misstatements.

2. In recent years in Canada, rules and regulations for assurance engagements have been added to help increase investor confidence. Which of the following statements regarding the increased level of regulation for assurance engagements is most likely true?

a) The high level of regulation is intended to create more consistent platform from which sound investment decisions can be made, and thus market regulation is used to eliminate all possibility of loss.

b) Increased rules and regulations eliminate the expectations gap regarding the function of an audit.

c) The purpose of the increased level of regulation is to reduce the risk that financial information relied upon by investors may be misleading.

d) Increased regulation comes with an increasing cost, but the benefit is that it will never reach a point of diminishing returns.

3.Butter and Scotch LLP (B&S) is the auditor of Panama Inc., a national public grocery chain whose head office is based in Toronto. Which of the following best describes B&S's duty of care?

a) There is legal contract between B&S and Panama. Thus, B&S's duty of care to Panama is a contractual one and this protects B&S and cannot give rise to an action for negligence.

b) Since B&S's contract is with the client company, Panama, the duty of care is owed only to Panama and not to the body of shareholders as a whole.

c) Although B&S's contract is with the client company, Panama, the duty of care is owed to both the client company and the individual shareholders of Panama.

d) Although B&S's contract is with the client company, Panama, the duty of care is owed to both the client company and Panama's body of shareholders as a