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aud ch 1
| Question | Answer |
|---|---|
| Why is professional skepticism necessary in every audit? | Because a potential conflict of interest always exists between the auditor and management. |
| In an attestation engagement, a practitioner is engaged to prepare a written report containing a _____ about the reliability of a management assertion. | Conclusion |
| _____________ requires officials to sign a statement indicating they have read the financial statements. | SOX Section 302 |
| The auditor's questioning of unusual financial trends falls under the application of _____. | Professional Skepticism |
| Since 2003, the _____ is responsible for issuing auditing standards for the audits of non-public companies. | American Institute of Certified Public Accountants (AICPA) |
| What three requirements must be met to become a CPA? | Education, Examination, and Experience. |
| The SOX prohibition against auditors "auditing their own work" is the primary reason _____ services are banned for audit clients. | Bookkeeping (and IT design/implementation) |
| Which professional service category includes independent services that improve the quality of information or its context for decision makers? | Assurance Services |
| Which certification is administered by the Institute of Internal Auditors (IIA)? | Certified Internal Auditor (CIA) |
| Internal auditors primarily focus on improving _____. | Operational efficiency and economy |
| When auditing Accounts Receivable, the concern that the balance is overstated due to falsified sales relates to the _____ assertion. | Existence |
| The assertion of _____ ensures that assets, liabilities, and transactions are recorded at appropriate amounts according to GAAP. | Valuation or Allocation |
| Which type of auditor is specifically task with ensuring compliance with IRS or bank regulations? | Regulatory Auditor |
| What are the three main sources of revenue for the "Big Four" public accounting firms? | Auditing/Assurance, Tax, and Advisory/Consulting. |
| Sustainability reporting and ESG (Environmental, Social, and Governance) reports are examples of _____. | Non-financial assurance or attestation engagements |
| The PCAOB requires auditors of "accelerated filers" to provide an attestation report on _____. | Internal Control over Financial Reporting |
| A "Cutoff test" designed to find sales made this year but recorded next year provides assurance for the _____ assertion. | Completeness |
| What are the "three Ps" of sustainability reporting that investors are increasingly concerned about? | Planet, People, and Profit. |
| Which type of risk is defined as the possibility that an entity will fail to meet its objectives due to factors like poor performance or failure to pay debt? | Business Risk |
| The certification designed specifically for professionals focused on fraud prevention, investigation, and deterrence is the _____. | Certified Fraud Examiner (CFE) |
| Performing a physical examination of machinery and equipment provides primary evidence for the _____ assertion. | Existence |
| The management assertion that all balances and transactions that should be present have been recorded is known as _____. | Completeness |
| How does a financial statement audit specifically benefit investors regarding information risk? | It lends credibility to firm performance data by reducing information risk. |
| A violation of the Completeness assertion regarding liabilities typically results in the account balance being _____. | Understated |
| Management is responsible for the financial statements; the auditor's role is to _____. | Express an opinion on them |
| What is the specific risk that information disseminated by a company will be materially false or misleading? | Information Risk |
| Professional skepticism requires that auditors ask questions, get answers, and then _____. | Verify the answers |
| In the new CPA exam structure, candidates must choose one "Discipline" section from BAR, TCP, or _____. | ISC (Information Systems and Controls) |
| Identify one specific non-prohibited service auditors can provide to audit clients, provided the audit committee approves it in advance. | Tax compliance services |
| If an auditor is checking if all required footnotes are included, which assertion are they testing? | Presentation and Disclosure |
| In the context of information risk, clerical errors and lack of knowledge of accounting principles are examples of _____. | Unintentional Errors |
| Why do bankers typically require audited financial statements from companies seeking large loans? | Because they perceive a potential conflict of interest between managers and the bank's need for reliable data. |
| The risk that a company will be unable to pay its debts when due is an example of _____ risk. | Business |
| Auditors are generally most concerned about the _____ of assets and revenue. | Overstatement |
| According to SOX Section 302, which two company officials must certify the financial statements? | The CEO and the CFO. |
| Under SOX Section 302, company officials must certify that the financial statements present a(n) _____ of the company's financial condition. | Accurate picture |
| Which PCAOB assertion is most likely to be the focus when auditing the accrued liabilities account? | Completeness (concern for understatement) |
| What is the primary objective of operational auditing? | To help management use resources in the most effective and efficient manner possible. |
| What specific management assertion is tested when an auditor scans expense accounts for unusually large credit entries? | Occurrence |
| Management assertions are the focal point of an audit because they represent the _____ management makes about the financial statements. | Recognition, measurement, and disclosure |
| What is the direct relationship between a financial statement audit and a company's business risk? | An audit does not directly address or reduce business risk. |
| Which 2002 Act prohibits public accounting firms from providing bookkeeping or internal audit outsourcing services to their audit clients? | The Sarbanes-Oxley Act (SOX) |
| If the Existence assertion for Cash is violated, what is the typical impact on the firm's stock price? | The stock price will usually be overvalued. |
| In auditing, the term "Occurrence" usually refers to management assertions regarding _____. | Events or transactions |
| Ensuring that no goods held on consignment are included in a client's inventory balance supports the _____ assertion. | Rights and Obligations |
| In a financial statement audit, what serves as the "established criteria" to which assertions are compared? | Generally Accepted Accounting Principles (GAAP) |
| Professional skepticism means the auditor should not assume that management is either _____. | Honest or dishonest |
| What is the minimum passing score for any section of the Uniform CPA Examination? | 75% |
| Under the new CPA exam, the AUD section weight for Multiple Choice Questions (MCQs) and Task-Based Simulations (TBSs) is _____ each. | 50% |
| Which organization was created by SOX to oversee and discipline CPAs and firms that audit public companies? | Public Company Accounting Oversight Board (PCAOB) |
| What term describes an auditor's questioning mind and critical assessment of management's presentations and evidence? | Professional Skepticism |
| Pro forma financial information is a common subject matter for _____ engagements. | Attestation |
| Identify the three levels of professional services from broadest to narrowest in scope. | Assurance Services, Attestation Engagements, and Auditing. |
| If a company reports 20 trucks on its balance sheet but physically only owns 15, which management assertion is primarily violated? | Existence or Occurrence |
| Professional skepticism includes remaining alert to conditions that may indicate misstatement due to _____. | Error or fraud |
| In auditing, the term "Existence" usually refers to management assertions regarding _____. | Account balances (assets, liabilities, and equity) |
| Which PCAOB release concept targets measures such as partner workload and industry expertise to evaluate an audit's quality? | Audit Quality Indicators (AQIs) |
| What is the primary role of the Government Accountability Office (GAO)? | To ensure public officials use public funds efficiently, economically, and effectively. |
| Audit service is defined as a systematic process of objectively obtaining and evaluating evidence regarding _____. | Assertions about economic actions and events |
| ___________ requires a one-year cooling-off period before an audit team member can join an audit client as an executive. | Section 206 of the Sarbanes-Oxley Act |
| According to the AICPA, what is an engagement where a practitioner is requested to examine whether management's assertions about a subject matter can be relied upon? | Attestation Engagement |
| Which assertion is violated if a company fails to disclose that its inventory is being used as collateral for a bank loan? | Presentation and Disclosure |
| What is the term for the set of standards that governs audits of public companies as established by the PCAOB? | Auditing Standards (AS) |
| XBRL (Extensible Business Reporting Language) reporting is a modern example of an _____ service. | Assurance |
| As of 2024, the CPA exam consists of three core sections: FAR, REG, and ___. | AUD |
| Which standard-setting body performs inspections of registered public accounting firms? | The PCAOB |
| An unqualified audit opinion provides _____ assurance that financial statements are free of material misstatement. | Reasonable |
| The risk of unintentional mistakes due to a lack of knowledge in accounting principles is categorized as _____ risk. | Information |
| What is the primary objective of compliance auditing? | To determine whether client personnel are following laws, rules, and regulations. |
| Financial statement audits primarily reduce the _____ for a company. | Cost of capital |
| When an auditor ensures that the entity has legal claim to reported assets, they are verifying the _____ assertion. | Rights and Obligations |
| If an auditor checks that transactions are recorded in the proper accounting period, they are testing the _____ assertion. | Completeness (specifically Cutoff) |
| What is the relationship between information risk and business risk? | They are independent of each other; low information risk does not guarantee low business risk. |
| Which PCAOB assertion ensures that assets and liabilities included in the accounts actually exist and recorded transactions are valid? | Existence or Occurrence |
| Which federal agency has oversight responsibility for the PCAOB? | Securities and Exchange Commission (SEC) |
| Which professional service category involves compiling a company's financial forecast without expressing an opinion? | Assurance Services (Compilation) |
| The primary objective of a financial statement audit is to communicate results to _____. | Interested users (such as creditors and investors) |
| Auditors are generally most concerned about the _____ of liabilities and expenses. | Understatement |
| Which certification requires $5$ years of experience in auditing or security work for IT systems? | Certified Information Systems Auditor (CISA) |
| If an auditor reviews the credit ratings of customers, they are gathering evidence for the _____ assertion of Accounts Receivable. | Valuation and Allocation |
Created by:
444ali