CH 2 ACC 4110
Smaller U.S. accounting firms that audit nonpublic entities adhere to Blank______ standards.
ASB
Which of the following is correct regarding the types of audits over which the ASB and the PCAOB, respectively, have standard-setting authority in the U.S.?
ASB: nonpublic company audits PCAOB: public company audits
The most important function of the Blank______ is the promulgation of rules and standards that guide audits and related services provided to nonpublic companies, governmental, and other entities.
American Institute of Certified Public Accountants (AICPA)
Independent professional services that improve the quality of information, or its context for decision makers.
Assurance services
A committee consisting of members of the board of directors, charged with overseeing the entity's system of internal control over financial reporting, internal and external auditors, and the financial reporting process.
Audit Committee
Using analysis, modeling, and visualization to discover and analyze patterns, anomalies, and other information in data in the context of an audit.
Audit data analytics
A privately funded body whose mission is to establish standards for financial accounting and reporting is known by the initials BLANK. (Enter the initials of the applicable body.)
Blank 1: FASB
The international counterpart to the FASB is the BLANK. (Enter the initials of the applicable group.)
Blank 1: IASB
Auditing and attestation are specialized forms of the general category of BLANK services. (Enter only one word per blank.)
Blank 1: assurance
Assertions companies make about sustainability have led to a promising new area of BLANK services for auditors. (Enter only one word per blank.)
Blank 1: attest or attestation
All professions operate under some type of code of BLANK or a code of BLANK. (Enter only one word per blank.)
Blank 1: ethics Blank 2: conduct
Reconstructing incomplete or damaged accounting records and probing money-laundering activities are examples of situations that often involve BLANK auditors. (Enter only one word per blank.)
Blank 1: fraud or forensic
According to "Principles Underlying an Audit," an auditor must avoid actions or relationships that appear to affect BLANK. (Enter only one word per blank.)
Blank 1: independence
The terms external auditor and BLANK auditor are generally used interchangeably. (Enter only one word per blank.)
Blank 1: independent
Because the objectives and work involved in performing audits of internal control and financial statements are closely interrelated, auditing standards require a(n) BLANK audit of internal control and financial statements. (Enter only one word per blank.)
Blank 1: integrated
Auditors who are employees of individual companies or government agencies are called BLANK auditors. (Enter only one word per blank.)
Blank 1: internal
An independent, objective assurance and consulting activity designed to add value and improve an organization's operations is the definition of BLANK BLANK. (Enter only one word per blank.)
Blank 1: internal Blank 2: auditing or audit
The SOX Act of 2002 required public companies to engage an external auditor to provide an opinion on the effectiveness of BLANK BLANK over financial reporting. (Enter only one word per blank.)
Blank 1: internal Blank 2: control or controls
The purpose of a(n) BLANK audit is to assess performance, identify areas for improvement, and develop recommendations. (Enter only one word per blank.)
Blank 1: operational, performance, or management
An attitude that includes a questioning mind and a critical assessment of audit evidence is the definition of professional BLANK. (Enter only one word per blank.)
Blank 1: skepticism
Processes implemented by management to achieve entity objectives, typically organized into the following categories: revenue, purchasing, human resource management, inventory management, and financing.
Business processes
A set of principles, rules, and interpretations that establish guidance for acceptable behavior for accountants and auditors.
Code of Professional Conduct
The oversight mechanisms in place to help ensure the proper stewardship over an entity's assets. Management and the board of directors play primary roles, and the independent auditor plays a key facilitating role.
Corporate governance
Which of the following best describes the general character of the three generally accepted auditing standards classified as standards of field work?
Criteria for audit planning and evidence gathering.
True or false: External auditors conduct financial statement audits, but only internal auditors conduct compliance, operational, and fraud audits.
False
Operational auditing is oriented primarily toward
Future improvements to accomplish the goals of management.
This organization's auditors conduct audits of activities, financial transactions, and accounts of the federal government and also assist Congress by performing special audits, surveys, and investigations.
GAO
Accounting principles that are generally accepted for the preparation of financial statements in the U.S.
Generally accepted accounting principles (GAAP)
Which of the following would be considered an assurance service engagement? I. Expressing an opinion about the reliability of a client's financial statements. II. Reviewing and commenting on a client-prepared business plan.
I only.
This organization is a part of the U.S. Treasury Department and its auditors examine and audit the books and records of organizations and individuals to determine their federal tax liability.
IRS
Which of the following best places the events of the last decade in proper sequence?
Increased consulting services to audit clients, Enron and other scandals, Sarbanes-Oxley Act, prohibition of most consulting work for audit clients, establishment of PCAOB.
A state of objectivity in fact and in appearance, including the absence of any significant conflicts of interest.
Independence
An audit of both financial statements and internal control over financial reporting, provided by the external auditor.
Integrated audit
The AICPA's Auditing Standards Boards recently completed a major project to converge its auditing standards with the standards of the Blank______ to the extent possible.
International Auditing and Assurance Standards Board (IAASB)
Which organization issues International Standards on Auditing (ISA) and is the predominantly recognized international auditing standards setter outside the United States?
International Auditing and Assurance Standards Board (IAASB)
The IASB is responsible for the development and publication of Blank______.
International Financial Reporting Standards
Statements issued by the International Federation of Accountants' International Auditing and Assurance Standards Board.
International Standards on Auditing (ISA)
The Public Company Accounting Oversight Board
Is a quasi-governmental organization that has legal authority to set auditing standards for audits of public companies.
Which of the following statements best describes management's and the external auditor's respective levels of responsibility for a public company's financial statements?
Management has the primary responsibility to ensure that the company's financial statements are prepared in accordance with GAAP, and the auditor provides reasonable assurance that the statements are free of material misstatement.
The magnitude of an omission or misstatement of accounting information that, in light of surrounding circumstances, makes it probable that the judgment of a reasonable person relying on the information would have been changed or influenced. The maximum amount by which the auditor believes the financial statements could be misstated and still not affect the decision of users.
Materiality
An instance where a financial statement assertion is not in accordance with the criteria against wiich it is audited. A departure from the applicable reporting framework (e.g., GAAP).
Misstatement
The Auditing Standards Board's replacement of the ten Generally Accepted Auditing Standards organized into four parts; Purpose of an Audit and Premise upon which an Audit is Conducted, Auditor Responsibilities, Audit Performance, and Audit Reporting.
Principles Underlying an Audit Performed in Accordance with GAAS
Which of the following is not a part of the role of internal auditors?
Providing reports on the reliability of financial statements to investors and creditors.
The Sarbanes Oxley-Act effectively transferred authority to set and enforce auditing standards for public company audits to the Blank______.
Public Company Accounting Oversight Board
The SOX Act of 2002 transferred authority for standard setting, inspection, investigation, and enforcement for public company audits from the profession to the Blank______.
Public Company Accounting Oversight Board (PCAOB)
The PCAOB conducts a program of regular inspections to assess the degree of compliance of registered accounting firms with the rules and professional standards of the Blank______.
Public Company Accounting Oversight Board (PCAOB) Securities and Exchange Commission (SEC) Sarbanes-Oxley Act of 2002
Which organizations work closely with the SEC when formulating accounting and auditing standards?
Public Company Accounting Oversight Board (PCAOB) The Financial Accounting Standards Board (FASB)
An organization created to provide professional accounting-related services, including auditing.
Public accounting firm
Which of the following are standards produced by some of the AICPA standing committees?
Quality control and peer review standards Attestation standards The Code of Professional Conduct Compilation and review standards
The concept that an audit done in accordance with auditing standards may fail to detect a material misstatement in a client's financial statements. In an auditing context this term has been defined to mean a high but not absolute level of assurance.
Reasonable assurance
The pre-audit risk that the entity's financial statements contain a material misstatement whether caused by error or fraud.
Risk of material misstatement
Which act regulates ongoing reporting by companies whose companies securities are listed and traded on a stock exchange or that possess assets greater than $10 million and its equity securities are held by 500 or more persons?
Securities Exchange Act of 1934
The FASB's Accounting Standards Codification (ASC) is recognized as the source of U.S. GAAP by the Blank______.
Securities and Exchange Commission (SEC) American Institute of Certified Public Accountants (AICPA) Public Company Accounting Oversight Board (PCAOB)
Auditing standards regarding the conduct of financial statement audits for public companies.
Standards (AS) of the PCAOB
Statements issued by the American Institute of Certified Public Accountant's Auditing Standards Board.
Statements on Auditing Standards (SAS)
Which act prohibits external auditors from providing many forms of nonaudit services and consulting work to public companies for which the auditor also provides a financial statement audit?
The Sarbanes-Oxley Act of 2002
Which of the following best describe the relationship between business objectives, strategies, processes, controls, and transactions?
To achieve its objectives, a business formulates strategies and implements processes, which are carried out through business transactions. The entity's information and internal control systems must be designed to ensure that the transactions are properly executed, captured, and processed.
True or false: CPAs can offer a variety of services that provide assurance but are not considered auditing or attestation.
True
True or false: If an auditor fails to exercise due professional care, he or she can be held liable for civil damages or even criminal penalties.
True
A "clean" audit report, indicating the auditor's opinion that a client's financial statements are fairly presented in accordance with agreed-upon criteria.
Unqualified/unmodified audit report
Under ASB and PCAOB standards, the word "should" indicates to the auditor Blank______.
a responsibility to comply unless alternative actions are sufficient to achieve the objectives of the requirement
A system or code of conduct based on moral duties and obligations that indicates how an individual should behave.
attest
When an auditor is hired to authenticate the nature and quality of inventory stored in a warehouse, the auditor is providing Blank______ services.
attest
All the information used by the auditor in arriving at the conclusions on which the audit opinion is based.
audit evidence
The risk that the auditor expresses an inappropriate audit opinion when the financial statements are materially misstated.
audit risk
A systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between those assertions and established criteria and communicating the results to interested users.
auditing
Persons elected by the stockholders of a corporation to oversee management and to direct the affairs of the corporation.
board of directors
Larger U.S. accounting firms that audit both public and nonpublic entities must ensure they follow Blank______ standards.
both ASB and PCAOB
According to "Principles Underlying an Audit," auditors must Blank______.
ensure they are competent comply with relevant ethical requirements maintain an attitude of professional skepticism
Expressed or implied representations by management that are reflected in the financial statement components.
financial statement assertions
Auditors specially trained in detecting, investigating, and deterring white-collar crime are called Blank______ auditors.
fraud
The Sarbanes-Oxley Act Blank______.
impacts the duties and practices of public companies requires public companies to obtain an integrated audit
The major portion of the AICPA's Code of Professional Conduct identifies actions that may impair auditors' Blank______.
independence
The concept that the manager generally has more information about the true financial position and results of operations of the entity than the absentee owner does.
information asymmetry
An independent, objective assurance and consulting activity designed to add value and improve an organization's operations is the definition of Blank______ auditing.
internal
Auditors who are employees of individual companies, government agencies, and other entities are called Blank______ auditors.
internal
The PCAOB Blank______.
is overseen by the SEC requires registration of all public accounting firms providing public company audits can impose sanctions for rule violation
Which of the following words indicate unconditional responsibilities with which the auditor must comply?
is required shall must
Primary responsibility for maintaining effective internal control and ensuring the fairness of the company's financial statements rests with the Blank______.
management
While auditors must exercise professional skepticism and due care in their work, the financial statements are ultimately the responsibility of Blank______.
management
Providing assistance concerning an entity's organization is an example of a(n) Blank______ service.
management advisory
ASB and PCASOB standards use which of the following words to describe actions and procedures auditors have a responsibility to consider?
may might could
CPA firms generally perform management advisory services for Blank______ only.
nonaudit clients
An entity hiring auditors to assess the efficiency and effectiveness of its use of IT resources is an example of a(n) Blank______ audit.
operational
The Sarbanes-Oxley Act prohibits external auditors from Blank______.
providing many types of consulting work for its auditing clients
The concept that an audit done in accordance with auditing standards may fail to detect a material misstatement in a client's financial statements.
reasonable assurance
The end product of the auditor's work, indicating the auditing standards followed and expressing an opinion as to whether an entity's financial statements are fairly presented in accordance with agree-upon criteria.
reporting
