Topic 2 - Chapter 2 Connect

Generally accepted auditing standards are established by the ______.

AICPA

AICPA Generally Accepted Auditing Standards recently adopted a numbering system that organizes standards by topic. This system is known as the ______ number.

AU-C

The highest authoritative guidance in the GAAS Hierarchy is ______.

Statements on Auditing Standards

A $500 error would most likely be considered material for ______.

a school fund raising organization

If the auditors deem that the financial statements are not fairly presented, they will issue a(n) ______ opinion.

adverse

The standards of the Financial Accounting Standards Boards may be referred to in the audit of ______.

all nongovernmental companies

The report on the financial statements of a public company should ______.

be signed in the name of the CPA firm with address state when the firm began serving as the auditor

A sample of the CPA's firm's engagements is selected for review in ______.

both system and engagement reviews

If the auditors are unable to determine the overall fairness of the financial statements, they will issue a(n) _____ of opinion.

disclaimer

When it comes to foreign companies that issue their securities in U.S. markets, the SEC ______.

does not require reconciliation with GAAP when statements are prepared using IRFS

True or false: An auditor is allowed to own an immaterial number of shares of stock in a company that she audits without affecting independence principles.

false

True or false: If additional information is required, an auditor cannot issue an unmodified opinion.

false

A set of criteria used to prepare financial statements is a financial reporting

framework

Both intentional acts that cause financial statement misstatements and misappropriation of assets are considered

fraud

Materiality depends on the ______ and the nature of the item.

intent

The auditors' opinion paragraph ______.

is based on an informed opinion, not absolute fact does not guarantee accuracy

Auditors have the same responsibility regarding ______ as they have for material errors and fraud.

laws having a direct effect on the financial statements

Preparing proper financial statements for the use of stockholders and creditors is the responsibility of

management

Unlike auditors of nonpublic companies, auditors of large public companies are required to ______.

provide assurance on the effectiveness of internal controls

During an audit, Jose becomes aware that the client has violated an environmental law by disposing of waste inappropriately. Jose feels that the violation is intentional and material and therefore has an obligation to communicate the matter to ______.

those charged with governance

Obtaining absolute assurance is not possible due to ______.

time and cost constraints the nature of financial reporting the nature of audit procedures

Which of the following areas are addressed in quality control standards?

Human resources Leadership responsibilities Relevant ethical requirements

An auditor can find guidance in SASs sections ______.

Objectives Definitions of important terms Introduction, including scope

Champ Electric, Inc. is a publicly traded company located in the United States. Auditors of Champ follow ______ standards when conducting an audit.

PCAOB

AICPA's Auditing Standards are identified under ______.

SAS number (dates) AU-C number (topic)

Match the AICPA guidance categories to the correct summary.

Statements on Auditing Standards matches Highest level of authority; must be applied Interpretive Publications Provides recommendations on the application of standards Other Auditing Publications Does not provide authoritative status, but helps the auditor understand and apply standards

Which of the following are PCAOB Attestation General Standards?

The engagement shall be performed by a practitioner having adequate knowledge of the subject matter. Due professional care shall be exercised in the planning and performance of the engagement.

Which of the following items are the same for public and nonpublic company standard audit reports?

The rules for proper dating of the report. The word "Independent" is included in the title. The name used to sign the report.

Identify the reasons why auditors cannot guarantee the correctness of financial statements.

The statements include many estimates. There are inherent limitations in the accounting process.

A set of criteria used to prepare the financial statements is known as ______.

a financial reporting framework

The term ______ means that all essential information as required by generally accepted accounting principles is included in the financial statements.

adequate disclosure

Engagement reviews ______.

are only available for CPA firms that do not perform audits are of a lesser scope than system reviews

Members of the AICPA who are in public practice with a firm that performs accounting services in the scope of the AICPA's practice-monitoring standards ______.

are required to practice in a firm enrolled in the AICPA Peer Review Program

Reasonable assurance is achieved when _________ risk is at an acceptably low level.

audit

The risk that the auditors may unknowingly fail to appropriately modify their opinion on financial statements that are materially misstated is known as

audit risk

During the planning of an audit, auditors must assess the risk of material misstatements due to ______.

both errors and fraud

As a practical matter, quality procedures should be established that are applicable to ______.

every aspect of a CPA firm's practice

True or false: In most areas the current General Auditing Standards in use by the PCAOB differ significantly from AICPA standards.

false

True or false: The only difference between a public company and nonpublic company standard audit report is the identification of the standards used to conduct the audit (PCAOB vs. GAAP)

false

A financial reporting framework is a set of criteria used to prepare ______.

financial statements

Grace Chin serves on the board of directors of Bliss Company. The standard that prohibits Grace from also auditing the financial statements of Bliss is known as ______.

independence

The PCAOB audit "Basis for Opinion" paragraph describes or alludes to ______.

independence requirements registration requirements the nature of a PCAOB audit

Auditors of large publicly traded companies perform a(n) _____ audit, which includes providing assurance on both the financial statements and the effectiveness of ______ _____ over financial reporting.

integrated, internal, control

The auditors' opinion paragraph ______.

is based on an informed opinion, not absolute fact does not guarantee accuracy

According to the FASB, if, in light of surrounding circumstances, the magnitude of an item is such that it is probable that the judgment of a reasonable person relying upon the report would have been changed or influenced by the inclusion or correction of the item, the omission of the item in a financial report is considered a(n) ______ deficiency

material

An auditor's personal responsibility to maintain a questioning mind, be alert to conditions that may indicate possible misstatement due to fraud or error, and a critical assessment of audit evidence is called ______.

professional skepticism

As alternatives to a report with an unmodified or unqualified opinion, auditors may issue a report with a(n) _____ opinion, a(n) _____ opinion or a disclaimer of opinion.

qualified; adverse

In performing an audit, the auditors determine that the allowance for uncollectible accounts is not sufficient. If management does not agree, the auditors will likely ______.

qualify their opinion

It is implied that there is a low level of risk remaining that auditors express an opinion that the financial statements are properly stated when they are not by the concept of

reasonable assurance

Registration with the PCAOB is ______.

required for all CPA firms that audit SEC registrants

The PCAOB ______.

requires all firms that audit SEC registrants to register with them may make referrals to the Justice Department to consider criminal cases performs inspections of audit practices of registered public accounting firms

Inspections completed by the PCAOB performed to assess an accounting firm's compliance are provided for in ______.

the Sarbanes-Oxley Act

Place GAAS authoritative guidance in order from highest level of authority to lowest.

1. standards 2. interpretive publications 3. other auditing publications

Which of the following is NOT included in the current PCAOB framework?

AICPA Auditing Standards

The AICPA establishes ______.

GAAS standards only