Auditing ch 1

Consulting Services Engagement

Advice and decision support

The assertions about the actuality of each balance sheet and income statement balance is

Completeness

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

Asserts that each of the income statement events and transactions actually did occur in the proper period. Relates to events, transactions, presentations, and footnote disclosures.

Occurence

Analyzing repair and maintenance expenses to ensure they should not have been capitalized test for the assertion of proper ______.

classification

asserts that each event and transaction actually happened

occurrence

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.

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.

The completeness assertion ______.

-includes determining if all expenses are recorded requires the auditor to obtain persuasive evidence

The obligation (owing) assertion ______.

-includes ensuring proper footnote disclosure -includes an estimate for product warranty

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. -All of the choices are correct.

All of the choices are correct.

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. -All of the choices are correct.

All of the choices are correct.

Assurance Engagement

Any information

Attestation is a form of providing

Assurance

_________Is a type of professional service

Assurance engagement

Financial statement auditing and attest station services are both types of

Assurance services

The consumers of ________ may be either a very small or very large targeted group

Assurance services

_________Include broad sets of information including non-financial information

Assurance services

___________Relate to a broad set of information, including non-financial information

Assurance services

For _________ improving the quality or context of information refers not to the information itself, but how the information is used in decision making

Assurance services Defined by the AICPA

________Refers to expressing an opinion on any type of information or subject matter that is the responsibility of another party

Attestation

An audit is a specific type of

Attestation engagement

Sustainability is a prominent type of

Attestation engagement

When a practitioner is engaged to issue a report on a subject matter or an assertion about subject matter that is the responsibility of another party it is a

Attestation engagement

When a practitioner is engaged to issue a report on a subject matter or an assertion about subject matter that is the responsibility of another party, it is

Attestation engagement

___________Refers to specifically to expressing an opinion on financial statements

Auditing

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.

All transactions, events, assets, liabilities and equities that should have been recorded, have been recorded.

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

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.

Sarbanes Oxley require that upper management certified he

Correctness of financial statements in affective of internal controls for financial reporting

Assurance services include

Customer satisfaction surveys, internal audit outsourcing, regulatory compliance, cyber risk assessment

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

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.

asserts that each of the balance sheet and income statement balances actually exist. Relates to account balances

Existence

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.

Attestation Engagement

Financial information

Prevailing balance sheets, income statements, and statement of shareholders equity, comprehensive income and cash flow is the function of

Financial reporting

Auditing Engagement

Financial statements

For independent auditors establish criteria essential for affective communication may be found in

IFRS & GAAP

For IRS auditor's effective communication may be found in

IRS code

Management assertions about financial statement presentation and disclosure are primarily found

In the footnotes

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.

Entry level audit professionals in today's environment need to first learn how to make the best use of

Internal data and information produced by the entity

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.

When auditing an investment in a publicly-traded 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.

Auditors complete procedures to ensure reported sales transactions were not created to fraudulently inflate profits to in order to test the ________ assertion

Occurrence

The ______ is responsible for setting all audit standards to be followed on audits of public companies.

PCAOB

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.

Regulator auditors establish criteria essential for affective communication may be found in

Regulatory agency rules

In testing inventory at an audit client in the retail industry, you note that some of the inventory is contracted to be held on consignment. As a result, which financial statement assertion is now relevant?

Rights and obligations.

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.

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.

In testing the goodwill at an audit client in the retail industry, an auditor may seek to determine whether the account balance had been impaired. Such impairment procedures would be designed to test which financial statement assertion?

Valuation

An auditor seeks to test the accuracy of the amount recorded as revenue on a contract with a customer under ASC 606. Which PCAOB assertion is most likely being tested?

Valuation and Allocation.

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.

The appropriate percentage of an asset or liability balance being recorded on the income statement in accordance with GAAP or IFRS is referred to as ________ and _______ refers to the appropriate recording of related transactions.

allocation; accuracy

When planning the audit engagement, auditors use management assertions to ______.

assess external financial reporting risks

accounting for revenue, expense, and other transactions in the proper period

cutoff

Verifying accounts receivable and insurance policies with customers and is done to test the ______ assertion.

existence

Cutoff procedures provide evidence about ______.

existence valuation completeness

Auditors verify cash with banks and count physical inventories to test the

existence assertion

The ownership assertion ______.

includes capitalized lease property

Auditors use __________ in developing appropriate evidence and assessing external financial reporting risks.

management assertions

Auditors use ________in developing appropriate evidence and assessing external financial reporting risks.

management assertions

The existence of cash is always relevant, and valuation ______ a relevant assertion for the cash account

may not be

Auditors complete procedures to ensure reported sales transactions were not created to fraudulently inflate profits to in order to test the

occurrence assertion

Examining accounts to ensure that amounts were appropriately expensed or capitalized is done to test the ______ assertion.

presentation and disclosure

A part of presentation and disclosure is the assertion that disclosures must be ________, reliable, and understandable or transparent to financial statement users.

relevant

Obtaining evidence about estimated liabilities relates to the ______ assertion.

rights and obligations

If there is a reasonable possibility that an account or disclosure could contain a misstatement that is material, the account or disclosure is identified as _________

significant

The auditor considers the relevance of each financial statement assertion, one at a time, after the __________and disclosures have been identified.

significant accoutns

Financial statements contain management's assertions about ______.

transactions and events account balances presentation and disclosure

Financial statements contain managements assertions about

transactions and events account balances and presentation and disclosu

According to SFAC No. 2, "Qualitative Characteristics of Accounting Information", _______ ,is "the quality of information that enables users to perceive its significance.

understandibility

Sarbanes-Oxley requires that ______ must certify the correctness of financial statements and the effectives of the internal control system.

upper management

Comparing vendor invoices to inventory prices, obtaining lower of cost or market data and recalculating deprecation schedules relate to the ______ assertion.

valuation and allocation