ACG 4632 Chapter 1 and 12 homework

Independent auditors of financial statements perform audits that reduce:

Information risk faced by investors.

The risk to investors that a company's financial statements may be materially misleading is called:

Information risk.

Which of the following audit procedures probably would provide the most reliable evidence related to the entity's assertion of rights and obligations for the inventory account?

Inspect agreements for evidence of inventory held on consignment.

Jones, CPA, is planning the audit of Rhonda's Company. Rhonda verbally asserts to Jones that all expenses for the year have been recorded in the accounts. Rhonda's representation in this regard:

Is not considered a sufficient basis for Jones to conclude that all expenses have been recorded.

Substantial equivalency refers to:

Permitting a CPA to practice in another state without having to obtain a license in that state.

In an attestation engagement, a CPA practitioner is engaged to:

Prepare a written report containing a conclusion about the reliability of a management assertion.

An auditor's purpose in auditing the information contained in the pension footnote most likely is to obtain evidence concerning management's assertion about:

Presentation and disclosure.

During an audit of an entity's stockholders' equity accounts, the auditor determines whether there are restrictions on retained earnings resulting from loans, agreements, or state law. This audit procedure most likely is intended to verify management's assertion of:

Presentation and disclosure.

Auditors found that the entity has not capitalized a material amount of leases in the financial statements. When considering the materiality of this departure from GAAP, the auditors would choose between which reporting options?

Qualified opinion or adverse opinion.

It is always a good idea for auditors to begin an audit with the professional skepticism characterized by the assumption that:

A potential conflict of interest always exists between the auditor and the management of the enterprise under audit.

The Sarbanes-Oxley Act of 2002 generally prohibits public accounting firms from:

Acting in a managerial decision-making role for an audit client. Auditing the firm's own work on an audit client. Providing tax consulting to an audit client without audit committee approval

Which of the following is not included in the standard (unmodified) report on the financial statements?

An emphasis-of-matter paragraph commenting on the effect of economic conditions on the entity.

When auditors wish to issue an unmodified opinion but highlight that the entity changed its method of accounting for software development costs, they would most appropriately identify the change in accounting method in which of the following?

An emphasis-of-matter paragraph.

Which of the following best describes the relationship between auditing and attestation engagements?

Auditing is a subset of attestation engagements that focuses on the certification of financial statements.

Which of the following statements is not true with respect to the audit examinations and reports for public and nonpublic entities?

Auditors are required to express an opinion on internal control in the audit of nonpublic entities but not in the audit of public entities.

The Sarbanes-Oxley Act of 2002 prohibits public accounting firms from providing which of the following services to an audit client?

Bookkeeping services. Internal auditing services. Valuation services.

Which of the following would be considered an assurance engagement?

Giving an opinion on a prize promoter's claims about the amount of sweepstakes prizes awarded in the past. Giving an opinion on the conformity of the financial statements of a university with generally accepted accounting principles. Giving an opinion on the fair presentation of a newspaper's circulation data. Giving assurance about the average drive length achieved by golfers with a client's golf balls.

Which of the following is a reason to obtain professional certification?

Certification provides credibility that an individual is technically competent. Certification often is a necessary condition for advancement and promotion within a professional services firm. Obtaining certification is often monetarily rewarded by an individual's employer.

Which of the following best describes the focus of the following engagements?

Choice d Auditing Engagement- Financial statements Attestation Engagement- Financial information Assurance Engagement-Any information Consulting Services Engagement- Advice and decision support

Company A hired Samson & Delilah, CPAs, to audit the financial statements of Company B and deliver the report to Megabank. Who is the client?

Company A.

Cutoff tests designed to detect valid sales that occurred before the end of the year but have been recorded in the subsequent year would provide assurance about management's assertion of:

Completeness

In auditing the accrued liabilities account on the Balance Sheet, an auditor's procedures most likely would focus primarily on management's assertion of:

Completeness

An auditor selected items for test counts from the client's warehouse during the physical inventory observation. The auditor then traced these test counts into the detailed inventory listing that agreed to the financial statements. This procedure most likely provided evidence concerning management's assertion of:

Completeness.

According to the AICPA, the purpose of an audit of financial statements is to:

Enhance the degree of confidence that intended users can place in the financial statements.

Which of these situations would require auditors to append an emphasis-of-matter paragraph about consistency to an otherwise unmodified opinion?

Entity changed its inventory costing method from FIFO to LIFO.

During an audit of a company's cash balance on a company with operations in only one country, the auditor is most concerned with which management assertion?

Existence.

When an auditor reviews additions to the equipment (fixed asset) account to make sure that fixed assets are not overstated, she wants to obtain evidence as to management's assertion regarding:

Existence.

When auditing the accounts receivable account on the Balance Sheet, an auditor's procedures most likely would focus primarily on management's assertion of:

Existence.

The organization primarily responsible for ensuring that public officials are using public funds efficiently, economically, and effectively is the:

Government Accountability Office (GAO).

When auditing merchandise inventory at year-end, the auditor performs audit procedures to ensure that all goods purchased before year-end are received before the physical inventory count. This audit procedure provides assurance about which management assertion?

Cutoff.

The primary objective of compliance auditing is to:

Determine whether client personnel are following laws, rules, regulations, and policies.

Performance audits usually include (Select all that apply.)

Economy and efficiency audits. Program audits.

When auditing an investment in another company, an auditor most likely would seek to conduct which audit procedure to help satisfy the valuation assertion?

Obtain market quotations from The Wall Street Journal or another independent source.

A determination of cost savings obtained by outsourcing cafeteria services is most likely to be an objective of:

Operational auditing.

When reporting under GAAS, certain statements are required in all auditors' reports ("explicit") and others are required only under certain conditions ("implicit"). Which combination that follows correctly describes the auditors' responsibilities for reporting?

Option A: GAAP-Explicit Consistency-Implicit Going concern-Implicit Opinion-Explicit

If the auditors decide to present separate reports on the entity's financial statements and internal control over financial reporting, which of the following should be modified to refer to the other report?

Option A: Report on Financial Statements- Yes Report on Internal Control over Financial Reporting- Yes

When financial statements are presented in comparative form and another firm audited the prior years' financial statements (but the other firm's report is not presented with the financial statements), the auditors' report on the current-year financial statements should

Refer to the report and type of opinion issued by the other firm on the prior years' financial statements.

If the opinion issued on prior years' financial statements is no longer appropriate and financial statements are presented in comparative form, the auditors' current report should

Reference the type of opinion issued on the prior years' financial statements and indicate that the current opinion on these financial statements differs from that expressed in the prior years.

When component auditors are involved in the audit of group financial statements, the group auditors may issue a report that

Refers to the component auditors, describes the extent of the component auditors' work, and expresses an unmodified opinion.

When auditing merchandise inventory at year-end, the auditor performs audit procedures to obtain evidence that no goods held on consignment are included in the client's ending inventory balance. This audit procedure provides assurance about which management assertion?

Rights and obligations.

How is the auditors' responsibility for expressing the opinion on financial statements disclosed in the standard (unmodified) report for a nonpublic company?

Stated explicitly in the Auditor's Responsibility section.

What requirements are usually necessary to become licensed as a certified public accountant?

Successful completion of the Uniform CPA Examination. Experience in the accounting field. Education.

Under which of the following conditions can a disclaimer of opinion never be issued?

The auditors have determined that the entity uses the NIFO (next-in, first-out) inventory costing method.

The primary difference between operational auditing and financial auditing is that in operational auditing:

The operational auditor is seeking to help management use resources in the most effective manner possible.

Bankers who are processing loan applications from companies seeking large loans will probably ask for financial statements audited by an independent CPA because:

They generally see a potential conflict of interest between company managers who want to get loans and the bank's needs for reliable financial statements.

R. Wolfe became the new auditor for Royal Corporation, succeeding C. Mason, who audited the financial statements last year. Wolfe needs to report on Royal's comparative financial statements and should disclose in the report an explanation about other auditors having audited the prior year

To describe the prior audit and the opinion but not name Mason as the predecessor auditor.

The auditors determined that the entity is suffering financial difficulty and its going-concern status is seriously in doubt. Assuming that the entity adequately disclosed this matter in the financial statements, the auditors must choose between which of the following auditors' report alternatives?

Unmodified opinion with a reference to going-concern or disclaimer of opinion

The objective in an auditor's review of credit ratings of a client's customers is to obtain evidence related to management's assertion about:

Valuation and allocation.