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AuditingChap1
| Question | Answer |
|---|---|
| What is the term for the risk that an entity will fail to meet its stated business objectives? | business risk |
| If an entity has a business risk that occurs often or substantially, what could happen? | the business itself could fail |
| Business risk puts the spotlight on the ______ that the business reports out to investors and other users so that such failures can be prevented or at least allow users to understand the issue sooner? | information |
| What is the term for the chance that a company takes that it's customers will buy from competitors, product lines will become obsolete, that taxes will increase, government contracts will be lost, or that employees will go on strike? | business risk |
| Information risk is the probability risk that information disseminated by a company will be ________ or _______. | materially false or misleading |
| Information risk can be _______ or _______. | intentional or unintentional |
| In regards to information risk, users demand an _____________________ of the information. | independent third party assessment |
| When an independent third party assesses the information of a company, the information must be ______,______, & ______. | timely, relevant, reliable |
| What are the 4 environmental conditions that increase user demand for relevant, reliable information? | 1. Complexity 2. Remoteness 3. Time Pressures 4. Consequences |
| Which environmental condition includes lack of effective training of corporate processes & laws/regulations? | Complexity |
| Which environmental condition is when decision makers are separated from current and potential business partners not only by a lack of expertise but also by distance & time? | Remoteness |
| Which environmental condition describes that in today's economic environment, it is required by businesses, investors, and other financial information users to make decisions more rapidly than ever before? | Time Pressures/Time-Sensitivity |
| The ability to _______________ is essential to businesses that want to remain competitive in our global business environment. | promptly obtain high-quality financial information |
| Which environmental condition is associated with decisions possibly involving significant investment of resources? | Consequences |
| Consequences are so important that ____________________________________ is an absolute necessity. | reliable information that is obtained & verified by information professionals |
| What are the 7 causes of errors regarding information? | 1. Conflicts of interest in exercising judgement (STvsLT) 2. Complexity of systems 3. Complexity of laws/regulations 4. Time pressures 5. Time pressures to meet deadlines 6. Human error inputting info, processing, & interpreting 7. Basic Greed |
| What is the definition of auditing? | a SYSTEMATIC process of objectively obtaining & evaluating EVIDENCE regarding ASSERTIONS about economic actions & events to ascertain the degree of correspondence between the assertions & established criteria & COMMUNICATING results to interested users |
| The persons who rely on the financial reports (interested users) consist of what 3 groups? | 1. creditors 2. investors 3. tax authorities |
| The lending of credibility to information is known as providing what? | Assurance |
| When the assurance is provided for specific assertions made by management, we refer to the assurance provided as what? | Attestation |
| When assertions are embodied in a company's financial statements, we refer to the attestation as what? | Auditing |
| What is the term for something being purposeful, logical, structured, & disciplined (but always evolving)? | Systematic |
| How do auditors "obtain & evaluate" evidence? | External financial auditors start with mgmt representations, financial statements & footnotes. Then they observe, inquire, confirm, and inspect the evidence (check degree of correlation b/t mgmt representation & reported to pre-established criteria). |
| Evaluating evidence helps the auditor form a judgement as to the _____________________________. | validity of the evidence & the information reported |
| Sometimes auditors may have to develop their own approach to ________ depending on what they are auditing. | obtain & evaluate evidence |
| When auditing, _______ should be consistent among users & companies; therefore should have a common basis for measuring & describing financial information. | Communication |
| Evidence relates to ________________________. | assertions made by management about economic actions & events |
| What is the purpose of an audit? | To enhance the degree of confidence that intended users can place in the financial statements |
| The purpose of an audit is achieved when the statements are prepared in accordance with _________________. | an applicable financial reporting framework |
| The opinion of an audit is generally on whether the financial statements are presented _______ in accordance with the framework. | fairly |
| An audit in accordance with ______ & relevant ethical requirements enables the auditor to form their opinion on whether financial statements are presented fairly. | GAAP |
| What is the term for an engagement that a practitioner assess & reports on a "subject matter" or an assertion about the subject matter that is the responsibility of another party? | Attestation |
| Attestation engagements are usually ______ in nature but don't have to be. | financial |
| What are 3 examples of FINANCIAL attestation engagements? | 1. financial forecasts & projections 2. examination of management's discussion & analysis 3. Pro-forma financial information |
| What are 3 examples of NON-FINANCIAL attestation engagements? | 1. effectiveness of internal controls 2. compliance with environmental regulations 3., verifying inventory quantities & locations |
| Agreed Upon Procedures are an example of _______ engagements. | attestation |
| What are independent professional services that improve the quality of information for decision makers? | Assurance services |
| Attestation of either financial OR non-financial information is _________. | Assurance |
| What are the 4 major elements of assurance services? | 1. Independence 2. Professional Services 3. Improving the quality of information or it's context 4. For decision makers |
| What does "improving context" refer to in assurance services? | it refers not to the information itself, but to how the information is used in a decision-making context |
| _______ & ______ are special types of assurance services. | Attestation & Audit Services |
| _____ refers to financial statements. | Auditing |
| ______ primarily refers to (but not exclusively) financial information. | Attestation |
| ______ can refer to ANY information. | Assurance |
| What is the function of financial reporting? | to provide statements of financial position, results of operations, changes in cash flows, and accompanying disclosures to outside decision makers who don't have access to management's internal sources of information |
| Financial statements contain management's assertions about _____ & _____ that occurred during the period being audited. | transactions & events |
| Financial statements contain management's assertions about ____ _____ at the end of period. | account balances |
| Financial statements include management's assertions about the financial statement _______ & _____ to each of the relevant assertions identified for an engagement. | Presentation & disclosures |
| What are the 5 PCAOB assertions? | 1. Existence or Occurrence 2. Rights & Obligation 3. Completeness 4. Valuation or Allocation 5. Presentation & Disclosure |
| What assertion determines whether the fixed assets actually exist & whether the recorded sales transactions actually occurred? | Existence & Occurrence |
| What assertion states whether a company really owns an asset & whether the legal responsibilities are identified? | Rights & Obligation |
| _______ is a part of the Completeness assertion that states whether the transactions at the beginning or end of the period were included in the proper period. | Cutoff |
| Which assertion states whether all transactions were recorded in the correct accounts & the disclosures are understandable to users? | Presentation & Disclosure |
| _____ generally refers to the client's year end balance sheet date. | Cutoff Date |
| What is the term for the quality of information that enables users to perceive its significance? | Understandability |
| The SOX Act of 2002 indicates in one of its most important provisions that the ______ ______ is responsible for the financial reporting process & the financial statements | Management Team |
| SOX Section 302 states that the key company officials must certify the financial statements by signing a statement indicating: (3) | 1. They have read the financial statements 2. They are not aware of any false or misleading statements (or key omitted disclosures) 3. They believe that the financial statements present an accurate picture of the company's financial condition |
| Group 1 of Management's Financial Statement Assertions: Assertions about EVENTS & TRANSACTIONS include which 4 assertions? | 1. Occurrence 2. Completeness & Cutoff 3. Accuracy 4. Classification |
| Group 2 of Management's Financial Statement Assertions: Assertions about ACCOUNT BALANCES include which 4 assertions? | 1. Existence 2. Rights & Obligations 3. Completeness 4. Valuation & Allocation |
| Group 3 of Management's Financial Statement Assertions: Assertions about PRESENTATION & DISCLOSURE include which 5 assertions? | 1. Occurrence 2. Rights & Obligations 3. Completeness 4. Accuracy & Valuation 5. Classification & Understandability |
| What refers to an auditors questioning mindset towards representations made by management & evidential matter gathered- not accepting management's representation without validation? | Professional Skepticism |
| Professional Skepticism must always be processional NOT _____ or ______ but must be skeptical because a potential conflict of interest always exists between the auditor & client | adversarial or confrontational |
| What are the 6 challenges faced by the auditor in attempting to apply "healthy skepticism"? | 1. Time pressures 2. Intimidation from client-management 3. Intimidation from your own team supervisors & peers 4. Clients tend to have former audit team members now working for them 5. Complexity of Rules 6. Conflicts of Interest |
| If a cutoff test shows a delay in recording a liability, it is not only incomplete but also ______. | undervalued |
| Professional skepticism is an auditor's responsibility to NOT _________________. | accept management assertions without corroboration-a responsibility to ask managers to "prove it" |
| What basic aspect underlies the important of professional skepticism? | A potential conflict of interest ALWAYS exists between the auditors and management of the enterprise under audit |
| What are the 4 types of auditors/audits? | 1. External, independent auditors/CPA's 2. Internal Auditors 3. Regulatory Auditors 4. Forensic |
| Basic accounting & review services are "_________" performed frequently for medium & small business & not-for-profit organizations | "nonaudit" services |
| What consists of preparing financial statements from a client's books & records without performing any evidence-gathering work?(non-audit service) | Compilation |
| Which non-audit service is when limited evidence-gathering work is performed but is narrower in scope than an audit? | Review |
| Which type of auditors ensure that the financial statements are reliable? | external, independent, auditors/CPAs |
| What is an independent, objective assurance and consulting activity designed to add value & improve an organization's operations? | Internal Auditing |
| Internal auditing helps an organization accomplish it's objectives by bringing a ________________________________. | systematic, disciplined approach to evaluate & improve the effectiveness of risk management, control, & governance processes |
| Internal auditors often perform ___________. | Operational audits |
| What refers to the study of business operations for the purpose of making recommendations about the efficient & effective use or resources, effective achievement of business objectives, & compliance with company policies? | Operational Auditing |
| Internal auditors also perform audits of financial reports for ______ use or limited _____ ______. | internal; external distribution |
| What type of audit/auditor ensures compliance with governmental rules & regulations? | Regulatory Auditors |
| The GAO (Governmental Accountability Office) shares with internal auditors the same elements of __________. | expanded scope services |
| What type of audits are designed to investigate a crime & will often involve gathering evidence designed to convict someone of fraud? | Forensic Auditing |
| What are the 5 certification requirements? | 1. Education level 2. Examination 3. Experience 4. State Certified & License 5. Skill Sets & Education |
| How long is the CPA EXAM? | 14 Hours |
| The CPA exam is ______. | computerized |
| What are the 4 parts of the CPA exam? | 1. Auditing & Attestation (AUD) 2. Financial Accounting & Reporting (FAR) 3. Regulation (REG) 4. Business Environment & Concepts (BEC) |
| What is the format of the CPA exam? | multiple choice & task-based simulations |
Created by:
nicolekunklee