audit ch 2 sb

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

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

The three levels of service covered by the AICPA are ______, ______, and agreed-upon procedures.

Examinations reviews

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

False

In the United States the financial reporting framework most commonly used is ______.

GAAP

When an item in the financial statements is not presented in accordance with applicable accounting principles, but not significant or material enough to overshadow an overall opinion or misstate the financial statements, the auditor will issue a(n)

Qualified

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

a school fund raising organization

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

both system and engagement reviews

Best Company has accounted for inventory using FIFO for the past three years. This application is an example of the ______ principle.

consistency

The concept of using the same accounting principles from year to year so that the successive financial statements issued by a business entity will be comparable is called ______.

consistency

First Company relies on one customer for the majority of its revenues each year. First Company's financial statements must acknowledge this relationship to financial statement users under the concept of adequate

disclosure

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

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

dollar amount

Auditing standards define unintentional misstatements or omissions of amounts or disclosures in the financial statements as

errors

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

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

framework

The auditor's standard of independence is violated when an auditor ______.

holds shares of stock in the company that he audits

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

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

laws having a direct effect on the financial statements

Auditing firms attempt to keep their audit risk at a ______ level.

low

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

management

Who is ultimately responsible for preparing financial statements for use by stockholders and creditors?

management

The auditor's opinion in the Independent Auditors' Report states that "In our opinion, the financial statements referred to above present fairly, in all ______ respects, the financial position of the Company..."

material

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

provide assurance on the effectiveness of internal controls

A public company audit report states that the auditors are responsible for expressing an opinion on ______.

the financial statements

Under PCAOB standards, when auditors are taking no exceptions and inserting no modifications in the report, a(n) ______ opinion is issued.

unqualified

When auditors determine that the financial statements follow GAAP and raise no other issues or concerns, the auditors will issue a(n) ______...opinion under PCAOB standards or a(n) ______ opinion under AICPA standards.

unqualified unmodified

IFRS are developed by the ______.

IASB

Identify which of the following is not covered in the auditors' report of a nonpublic company.

Management's opinion

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

PCAOB

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

A CPA firm should establish adequate ______ ______ policies and procedures to provide reasonable assurance that it follows professional standards on every engagement.

Quality control

A peer review in which the evaluator considers the CPA firm's system of quality control to perform accounting and auditing work is called a(n) ______ review

System

The auditors' opinion paragraph in a public company audit report addresses ______.

accounting principles

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

adequate disclosure

Ron oversees inventory reporting at A+ Fabricating. Ron unintentionally forgets to record a receipt of inventory on December 30, right before the company's year-end causing an understatement in net income. This oversight is considered ______.

an error

Jones, CPA samples a large amount of the client's invoices to reduce the risk that auditors may unknowingly fail to modify the opinion on financial statements that are materially misstated. This is known as ______ risk.

audit

Which of the following is NOT included as a level of service in the AICPA attestation standards?

audit

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

false

Because of the various types of evidence obtained, it is appropriate for the auditors to state they have audited the ______ of a company.

financial statements

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. (Enter only one word per blank.)

material

Auditors are responsible to obtain reasonable assurance that clients are in compliance with ______.

only laws having a direct effect on financial statements

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

The auditors state that there is a limitation on the scope of the audit, but not so far as to overshadow an overall opinion when issuing a(n) ______ opinion.

qualified

Standards that provide CPA firms with guidance to provide reasonable assurance that the firm's engagements are conducted in accordance with applicable professional standards are called ______.

quality control standards

An underlying principle of AICPA Generally Accepted Auditing Standards includes that an auditor must obtain ______ assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error.

reasonable

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

In the audit report for a public company, the responsibilities of management are described in ______.

the Basis for Opinion paragraph

Professional skepticism includes ______.

- a questioning mind - being alert to conditions that may indicate possible misstatement due to fraud or error - critical assessment of audit evidence.

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

- registration requirements - independence requirements - the nature of a PCAOB audit

The PCAOB ______.

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

Engagement reviews ______.

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

Grey Landscaping Inc. is a family-owned company located in the United States. The company's auditors use ______ standards to conduct their audit.

AICPA

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

AICPA Auditing Standards

Blane, an auditor for Femi & Co. LLP, has been asked to draft an auditors' report for Sole Shoes Inc., a nonpublic company. The report should include ______.

Auditor's Responsibility Management's Responsibility Auditor's Opinion

A peer review in which the evaluator selects a sample of the CPA firm's actual accounting work to evaluate whether the reports are procedures are appropriate is called a(n) ______ review.

Engagement

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