Acct 4400
To audit fair value estimates, auditors can use all of the following approaches except _____
confirm management's estimate
The PCAOB regulates all accounting firms that audit _____ companies
public (issuer)
Without regard to theeffect of controls, _____ assertions are those that have a reasonable possibility of containing a misstatement that could cause the financial statement to be materially misstated
relevant
In a financial audit, auditors gather sufficient evidence to provide _____ _____ that the financial statements follow GAAP or some other appropriate accounting framework
reasonable assurance
Controls that mitigate or eliminate threats to independence are called _____
safeguards
Audit fees are composed of:
-profit -overhead -payroll taxes -staff salaries
Acceptable forms of advertising include _____ (4)
-types of services -certifications of members -fees charged for services -degrees of members
When auditors discover an illegal act that must be reported, the first communication should be to the _____
board of directors
CPA's are obligated to exercise _____________ _____________ care in all engagements, whether or not it is specifically outlined in the engagement letter.
due professional
T/F: Potential CPA liability may exceed that of other professions, such as physicians
true
T/F: The public accounting profession differs from other professions in that auditors do not directly interact with those they provide service for
true
T/F: While CPAs may not perform management functions or make nay management decisions for their clients, they are allowed to provide advice, research, and recommendations to assist their client decision-making
true
A sample of the CPA's fiirm's engagements is selected for review in _____
both system and engagement reviews
The working papers that pertain solely to this year's audit are called the ____ files.
current
A review of financial statements is designed to provide _____ _____ on the credibility of the statements
limited assurance
All shareholders and directors of a professional corporation _____
must be engaged in the practice of public accounting
When a successor auditor is offered an auditing engagement, the successor auditor _____
must obtain te client's consent before discussing confidential information with the predecessor auditor
Reviewing related party transactions to confirm that they are properly recorded is an example of verifying financial statement ________ of assets
presentation of
Standards that provide CPA firms with guidance to provice reasonable assurance that the firm's engagements are conducted in accordance with applicable professional standards are called:
quality control standards
Used to develop a more precise expectation of a financial statement balance that is not based on a statical model, a(n) _____ is similar to regression analysis
reasonableness test
The required understanding of the client is used to help plan the audit and assess the risks of material misstatement at the financial and _____ _____ levels
relevant assertion
Which of the following relates to the circumstances in which evidence is obtained?
reliability
Revenue, acquisitions, conversion and payroll are all typical _____ cycles
transaction
The development of common-size financial statements is also known as _____ _____
vertical analysis
Auditors obtain a representation letter from management:
when completing the audit
Audit evidence in paper or electronic form that is obtained through inspection of records is referred to as _____ evidence
documentary
T/F: When performing analytical procedures, the best data for developing an expectation is industry averages
false
Reckless disregard for one's professional responsibilities is considered ______________ negligence.
gross
Who is ultimately responsible for preparing financial statement for use by stockholders and creditors?
management
The record of the audit procedures performed, relevant audit evidence obtained, and the conclusions the auditors reach is called audit documentation or:
working papers
Auditors have the same responsibility regarding _____ as they have for material errors and fraud
laws having a direct effect on the financial statements
Even a small misstatement, such as a misstatement that affects a client's loan covenants, may be considered a(n) ______________ misstatement to the financial statements.
material
An audit report that included an unmodified (unqualified) opinion is generally referred to as a(n) _____ report
standard
A sophisticated expectation development technique using statistical models to quantify auditor expecatations is _____ analysis
regression analysis
CPAs provide a report on subject matter or an assertion about that subject matter in a(n) _____ engagement
attestation
Juries are permitted to examine the issues of causation and assess a percentage figure of fault to the CPAs, client and other defendants under the concept of _____
comparative negligence
The Compliance with _____ rule requires CPAs to adhere to professional standards promulgated by various technical bodies
standards
The relevant rule of the COde of Professional Conduct for other members (retired and unemployed) is _____
acts discreditable
Discussion(s) with audit team members about the susceptibility of the client's financial statements to material misstatements are _____
always required
Generally highly reliable evidence is available to substantiate _____
assets and liabilities
Responsibility for the appointment, compensation, and oversight of the auditors rests with the client's ___________
audit committee
The _____ principle keeps financial statements similar to and comparable with prior years
consistency
Without public confidence in the attestor, the attest function serves no purpose. Because the need for public confidence is so high, CPA's product is _____
credibility
No information may be discarded from the working papers after the _____ date
documentation completion
The confirmation of receivables with debtors to verify that all recorded receivables are legitimate is verifying the audit assertion _____________ assets.
existence of
Many of the Treadway Commission's recommendations lead to a group of Statements on Auditing Standards known as the ______ _____ standards
expectation gap
T/F: Oral client representations are generally considered sufficient audit evidence as long as the auditor does a careful evaluation
false
T/F: The AICPA requires specific quality control procedures
false
T/F: The procedures in an audit will be the same for the audit of a small retail store and a multinational corporation
false
An intentional misstatement of inventory to overstate net income is considered _____
fraud
CPAs are required to perform all CPA services with competence and professional care under the _____ standards rule
general
Auditors of public companies must wait _____ before accepting a CFO position with an SEC registrant
one year
A description of the nature, timing, and extent of the audit procedures to be performed is found in the audit _____
plan
A number of factors, including the predictability of the relationships and reliability of the underlying data used, determine an analytical procedure's _____
precision
The quantity of audit evidence needed is affected by the risk of misstatement and _____ of audit evidence
quality
which of the following is not a facet of the overall audit strategy?
seting a date when the final audit fees will be paid
The passage of the Sarbanes-Oxley Act _____ the AICPA's influence and responsiblity
significantly diminished
Usually organized around the balance sheet accounts, the _____ portion of the audit program is aimed at confirming financial statement amounts
substantive procedures
Inspections completed by the PCAOB performed to assess an accounting firm's compliance are provided for in _____
the Sarbanes-Oxley Act
A spreadsheet that combines Petty Cash with all the company's bank accounts is an example of a
1. lead schedule 2. summary schedule
Categories of traditional financial ratios include _____ ratios
1. leverage 2. activity
Data analytics _____
1. may assist in the assessment of risk of material misstatement 2. may involve testing entire populations instead of samples 3. results in a more detailed understanding of the client
T/F: The International Federation of Accountants (IFAC) is a global organization of individuals who work in professional accountancy
False
A CPA can be held liable to any third party the auditors could "reasonably foresee" as recipients of the statements for routine businsess purposes under the _____ approach
Rosenblum
When evaluating the overall attractiveness of the industry a client operates in, auditors consider ______
-bargaining power of suppliers -bargaining power of customers -barriers to entry -strength of competitors
Professional skepticism includes _____ (3)
-being alert to conditions that may indicate possible misstatement due to error -a questioning in mind -critical assessment of audit evidence
Potential significant business risks for a client include:
-competition -material price valotility -changes in government regulations -interest rate increases
The confidential relationship between the CPA and the client _____ (2)
-prevents release of information whose disclosure could financially injure the client -prevents the CPA from leaking information that could profit the CPA
A public company audit report states that the auditors are responsible for expressing an opinion on _____
the financial statements
Those charged with governance
-management -board of directors -audit committee
Representations in the representation letter include _____
1. all items requiring any disclosure are sufficiently disclosed 2. financial statements are complete and were prepared with the use of generally accepted accounting principles
Under section 18 of the 1934 Act, auditors may avoid liability by proving good faith which can normally be done unless they have been guilty of
1. fraud 2. gross negligence
When an unresolved difference of opinion arises _____
1. the opinion of the partner-in-charge will prevail in the audit report 2. all members of the audit team have the right to document the disagreement in the working papers
T/F: Due professional care is required by the audit firm only when it is specified in the engagement letter
false
If auditors test 20% of a population and find a $4,000 misstatement, the would estimate the entire population is misstated by about _____
$20,000
CPA firm independence from a client is required when providing _____
-audit services -other attestation and assurance services
For independence concerns, immediate family members under the restrictions as the covered member include _____ (3)
-dependents -spouse -spousal equivalent
To establish CPA liability, the injured party must prove _____
-duty -losses
If auditors identify fraud risks, the auditors may modify their overall approach to the audit by _____
-increasing third-party confirmation -adding specialized audit staff
Examples of risk a the financial statement level include _____
-ineffective control environment -a declining industry -lack of sufficient capital to continue operations
Before performing any nonattest services for an attest client, the CPA must establish and document the _____ (5)
-limitations of the engagement -client's responsibilities -services to be performed -objectives of the engagement -CPA's responsibilities
Place GAAS authoritative guidance in order from highest level of authority to lowest
1. Standards 2. Interpretive Publications 3. Other Auditing Publications
In 2010, to promote financial stability following the collapse of the subprime market and reversal of the housing boom, Congress passed the _____-_____ Act, also known as the Wall Street reform and Consumer Protection Act
Dodd-Frank
Which of the following statements is correct?
The SEC has oversight responsibility for the PCAOB
For situations not directly addressed in the Code of Professional Conduct, _____ _____ are included for CPAs in public practice and in business
conceptual framework
Effective in 2019 (large public companies) and 2020 (other public companies) the PCAOB requires the auditors to present _____ _____ matters in their report
critical audit
An audit procedure that serves as a test of controls and a substantive test of the details of the transactions that occurred during the year is known as a(n) _____________ ____________ procedure.
dual-purpose
CPA's engaging in compilation or review engagements have a liability to their client to exercise _____________ ___________ care
due professional
The nature and extent of the audit work to be performed on a particular engagement depend largely upon the _____
effectiveness of the client's internal control
The price that would be received to sell an asset or the amount that must be paid to transfer a liability in an orderly transaction between market participants is the definition of ____ value
fair
CPA firms are allowed to use fictitious names as long as they are not _____, misleading, or deceptive
false
T/F: A CPA firm that performs an audit or review for a client can recommend a product to the client and receive a commission as long as the fact is disclosed to the client
false
T/F: A client representation letter may be used as a substitute for performing other audit procedures
false
T/F: Physical examination of plant andequipmentverifies ownership
false
T/F: 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
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
Due to a CPA's responsibility to serve the public, _____ is perhaps the most important concept in the AICPA Code fo Professional Conduct
independence
These transactions involve activities that occur only periodcally, such as taking physical inventories or calculating depreciation expense
nonroutine
For related party transactions, auditors should be most concerned about obtaining evidence regarding _____
presentation and disclosure
Which of the following types of information related to the audit must be returned to the client if requested?
records provided by the client
An important term in any discussion regarding the impact of the SEC on accounting practice is _____ statement
registration
When auditors obtain evidence of fraud, they should _____ withdraw from the engagement
sometimes
Standards used in an attest engagement that are established or developed by groups composed of experts are referred to as _____ _____
suitable criteria
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
Which of the following statements are correct? (2)
-IFRS generally requires more judgment application than GAAP -many professional believe audits of IFRS financial statements are more challenging than GAAP statements
Auditors should document several elements of risk assessment including:
-audit team discussion -understanding of the entity and its environment -nature, timing, and extent of further audit procedures
When performing nonattest services for an attest client, a CPA's independence can be impaired if the CPA _____ (3)
-authorizes a transaction for the client -sets policies for the client -has custody of a client's assets
The relevant rules of members in practice and members in business include _____ (2)
-integrity and objectivity -accounting principles
The report on the financial statements of a public company should _____ (2)
-state when the firm began serving as the auditor -be signed in the name of the CPA firm with address
In the early 20th century which of the following were recognized as good fraud protection techniques? (2)
-strong internal control -surety bonds
Inventory turnover and accounts receivable turnover are _____ ratios
activity
The reliability of customer sales invoices created by the client and held internally depends on the _____
effectiveness of internal control
T/F: All rules of the AICPA Code of Professional Conduct apply to CPAs in business
false
T/F: In performing risk assessment, auditors only focus on material misstatement at the financial statement level
false
Which of the following is not a component of the fraud risk triangle?
fear
A lack of sufficient capital to continue operations is considered a(n) _____ level risk
financial statement
The Code of Professional Conduct requires CPAs to be _____ from a client when providing audit or attestation services
independent
auditors are required to:
perform audit procedures that may identify noncompliance with other laws that may have a material effect on financial statements
Along with establishing standards and rules to guide CPAs, the AICPA also _____ (3)
-carries on a program of research and publication -promotes continuing professional education -contributes to the profession's self-regulation
An auditor can find guidance in SASs sections _____
-definitions of important terms -introduction, including scope -objectives
When auditors are aware of a fraud risk they may _____
-interview personnel involved in areas where risks are identified -increase sample sizes for substantive procedures -apply procedures that provide more reliable evidence
Auditors are required to:
1. evaluate the reasonableness of account estimates 2. ensure accounting estimates are properly accounted for and disclosed
Factors that can influence the level of audit documentation detail include:
1. risk of misstatement 2. extent of judgment involved 3. nature of auditing procedures
Under the Securities Act of 1933, the auditors can avoid liability for the plaintiffs' losses if they can prove:
1. the plaintiffs knew of the misstatement when they purchased the securities 2. they conducted the audit with due diligence 3. the statute of limitations has expired
John Jones, CPA has a 20 year old son in college who is still John's dependent. The son just purchased 10 shares of stock in a company John audits. Which of the following statements is correct?
This is a direct financial interest that impairs John's independence
To gain an understanding of the client, the auditors will identify methods used by the client to measure and review _____
performance
In order to be awarded a CPA certificate, candidates must _____ (3)
-pass all four parts of the uniform CPA exam -satisfy the experience requirements of the licensing state -satisfy the educational requirements of the licensing state
Workpapers may include _____
1. working trial balance 2. bank reconciliations 3. audit plans 4. representation letter
When financial statements are not fairly presented, the auditor will issue a(n) _____ opinion
adverse
The type of attest engagement in which the CPA and users of the information mutually decide on procedures the CPA will perform a(n) _____ engagement
agreed-upon procedures
Match the type of ratio analysis to its description 1. cross-sectional 2. horizontal analysis
1. comparison with similar firms (ex. industry) at a point in time 2. review of client financial statement amount over time
An auditor would consider hiring a specialist for assistance in _____
1. estimation of oil and gas reserves 2. determining the value of art pieces held by the company 3. determining the value of a diamond shop's inventory
Which of he following statements explains the relationship of attestation services to assurance services?
all attestation services are also assurance services
Members of the AICPA who are in public practice with an 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
To improve their capabilities to provide professional services, may CPA firms join a group of firms, typically structured as a(n) _____ which is a separate legal entity
association
It is critically important that accountants who perform attestation services have independence of both _____ and _____
-mind -appearance
The auditors perform a number of procedures near the ompletion of the audit including _____
-completing the search to identify contingencies -performing final analytical procedures -completing the review of minutes of meetings -obtaining a representation letter
An accounting firm can be sued for fraud if the firm:
1. knowingly misrepresented facts 2. caused the client financial loss
Which of the following statements is correct?
1. many large accounting firms self-insure for professional liability 2. CPAs should approach every engagement with the prospect they may be required to defend their work 3. CPAs may be charged criminally for certain conduct during an audit
Match the technical body with their authority to issue generally accepted accounting principles 1. FASB 2. GASB 3. FASAB 4. IASB
1. for nongovernmental entities 2. for state and local governmental entities 3. for federal governmental entities 4. for international financial accounting and reporting principles
Auditors should investigate any significant differences between their prior expectations and the actual amounts on the client's financial statements. Which of the following are proper methods of investigation?
1. inquiry of management 2. expanding the tests of financial statements to determine materiality 3. reconsidering the factors and methods originally used in making the expectations
The Conceptual Framework section of the AICPA Code of Professional Conduct is applicable to _____ (2)
-members in public practice -members in business
Analytical procedures and tests of detail of account balances, transactions, and disclosures are _____ procedures
substantive
The Code of Professional Conduct suggests during ethical conflicts, CPAs should consider _____ (2)
-ethical issues involved -established internal procedures
The audit risk model is: AR=_____
IR x CR x DR
Complaints about a CPA's conduct with national interest are first referred to the:
Professional Ethics Division of the AICPA
Memoranda of the planning process and significant discussions with management are considered _____ working papers
administrative
Identify the types of further audit procedures performed
-confirmation -inquiry -inspection
The two types of peer review are _____ review and _____ review
-system -engagement
Lee needs to research an accounting issue for a company. The source he would most likely reference first would be the FASB _____
codification
Inherent risk is generally highest for _____ transactions because they involve management judgment or assumptions
estimation
A primary measure of the effectiveness of an analytical procedure is its _____
precision
comparing the price on an invoice to that on an approved price list is an example of the audit procedure of
reperformance
Auditors are given 60 days after the audit _____ date to complete the audit file
report release
If auditors obtain evidence of fraud they should evaluate the implications and _____
report the matter to a manager at least one level above the one involved
The Securities Act of 1933 is a _____ law
statutory
Put the following types of accounting firms in order from largest to smallest based on the typical number of employees in each firm
-Big 4 firm -national firm -regional firm -local firm
Further audit procedures include:
-tests of controls -substantive procedures
Planning materiality is commonly based on % of:
-total assets -net income -total revenues
auditing standards require that audit documentation provide evidence:
1. of the auditor's basis for concluding on the achievement of the audit's overall objectives 2. that the audit was planned and performed in accordance with GAAS
Conrol risk is a function of _____
1. operating effectiveness of internal control 2. design effectiveness of internal control
Data analytic techniques _____
1. reveal trends related to human behavior 2. can enhance operating efficiency 3. include the use of artificial intelligence
Match the amount of evidence needed to risk of misstatement and quality of evidence
More evidence needed: 1. greater the risk of misstatement 2. the lower quality of the evidence obtained Less evidence needed: 1. lower the risk of misstatement 2. the higher quality of the evidence obtained
T/F: Under the Private Securities Litigation Reform Act of 1995, an auditor who discovers illegal acts by a client is required to report them to the client's management team
false
T/F: Under the Private Securities Litigation Reform Act of 1995, an auditor who discovers illegal acts by a client is required to report them to the client's management team.
false
During the second stage of the audit process, auditors use ____________ ___________ procedures to gather information to assess the risks of material misstatement of the financial statements and to design the nature, timing and extent of further audit procedures.
risk assessment
To obtain the eunderstandingof the entity and its environment, auditors perform _____ _____ procedures
risk assessment
The auditors' duty is defined by:
1. the engagement letter 2. legal considerations 3. GAAS
The risk of material misstatement of an assertion without considering internal control is called ____ risk
inherent
Risk of material misstatement consists of two components, _____ risk and _____ risk
inherent, control
Reasonable assurance is achieved when _____ risk is at an acceptably low level
audit
Which of the following services provides assurance but does not involve attestation?
-CPA PrimePlus -XBRL services
The AICPA has assigned responsibility for issuing official pronouncements on auditing matters to the _____
ASB
Engagement reviews _____ (2)
-are of a lesser scope than system reviews -are only available for CPA firms that do not perform audits
The Code of Ethics for internal auditors was developed by the _____
Institute of Internal Auditors
In the United States the financial reporting framework most commonly used is _____
GAAP
If a covered member's independence is impaired, a firm's independence _____
is also impaired
Relationships between public accounting firm partners and clients _____ (2)
-may make it easier to resolve differences during an audit -may impair the appearance of independence
Match the Code of Professional Conduct component with its definition. 1. Principles 2. Rules 3. Interpretations
1. statements that provide overall framework of profession's responsibilities 2. requirements that are enforeable under the AICPA bylaws 3. issued by the AICPA to provide guidelines for the scope and application of the rules
Comparing a company's inventor turnover to industry standard rates is an example of _____
analytical procedures
Statutory law _____
1. includes the RICO Act 2. does not have the same latitude as common law
Many firms have developed a(n) ______ _______ that uses a combination of financial and nonfinancial performance measures to assess the organization
balanced scorecard
Due to the continuing litigation involving auditors, it is important for CPA firms to develop quality control policies for throughly investigating clients _____
before an engagement is accepted
A CPA firm that performs consulting services for a client may accept a commission fee if _____
disclosure is made to the client
The PCAOB _____ (3)
-performs inspections of audit practices of registered public accounting firms -may make referrals to the Justice Department to consider criminal cases -requires all firms that audit SEC registrants to register with them
When a CPA is found guilty of a professional ethics violation _____ (2)
-permanent expulsion from the AICPA may occur -AICPA membership may be suspended for up to two years
Common methods for auditors to determine related parties include _____
1. inquiries of management 2. reviewing SEC filings 3. conflict-of-interest statements
Auditors indirectly verify revenue, cost of goods sold and expenses by substantiating changes in the _____ and _____ accounts
asset ; liability
Certified public accountants (CPAs) provide a broad range of information enhancement services known as _____ services
assurance
Having a CPA provide a report about a firm's compliance with laws and regulations, is an example of a(n) _____ engagement
attest
The return envelope sent with confirmations should be addressed to the _____
auditor's office
Data analytics is the examination of large datasets or ____________ ____________ to uncover hidden patterns, unknown correlations, market trends and other useful business applications
big data
The Continental Vending Machine Corporation case set precedence that CPAs can face _____
both criminal and civil charges
Damage due to a CPA's negligent performance is _____
causation
The Securities Litigation Uniform Standards Act in 1998 established standards related to _____________ ______________ lawsuits
class action
In order to decrease the possibility of careless work or a lack of integrity that could lead to a negative view of the profession, the AICPA developed _____
code of conduct
When investors sue the audit firm for negligence, the audit firm is the _____
defendant
The three levels of service covered by the AICPA are _____, _____ and agreed upon procedures
examinations, reviews
Confirmations are generally effective at providing evidence for the _____ assertion
existence
T/F: If additional information is required, an auditor cannot issue an unmodified opinion
false
T/F: In most areas the current General Auditing Standards in use by the PCAOB differ significantly from AICPA standards
false
Determining whether the balance sheet and related statements of income, retained earnings, and cash flows have been prepared in accordance with GAAP is the goal of a(n) _____ audit
financial
In 1996, the AICPA issued guidance to auditors requiring an explicit assessment of the risk of material misstatement in financial statements due to _____ on all audits
fraud
If a group of partners and staff that are not covered members together own more than 5% of an attest client's outstanding equity securities, the public accounting firm's _____ is impaired
independence
The time interval from the beginning of audit work to the balance sheet date is called the ____ period
interim
During the second stage of the audit process, auditors must obtain an understanding of the nature of _____ _____ because it allows them to identify accounts and classes of transactions that may be misstated and to tailor audit procedures to the existing system
internal control
In order to sign the preparer's declaration page on a tax return a CPA must _____
investigate unreasonable or contradictory information
Under international standards, the valuation of financial statements and goodwill are considered to be _____ _____ matters.
key audit
The professional ultimately responsible for assuring the audit is performed in accordance with applicable professional standards is the _____
lead partner
In a lawsuit for losses against a CPA, a third party must establish _____
losses resulted from the CPA's performance AND the CPA breached a duty of professional care
The professional responsible for determining the audit procedures applicable to specific audits and for maintaining uniform standards of fieldwork is the _____
manager
The fact that some matters are important to the fair presentation of financial statements while others are not is recognized by the conept of _____
materiality
T/F: Auditors are not required to use analytical procedures as substantive procedures to provide evidence about financial statement assertions
true
T/F: One way to verify opening balances is to work with predecessor auditors to review working papers related to these accounts
true
T/F: When performing tax engagements for a client, CPAs have a responsibility to the both the client and the public
true
More effective audit procedures are performed by auditors at:
year-end
The SEC Rule of Practice 102(e) gives the SEC the power of:
1. disbarment 2. suspension
The planning materiality amount that will require the auditors to gather the most audit evidence is:
$10,000
the audit risk model is a function of _____ risk
1. inherent 2. control 3. detection
The FASB's power has ben designated by the _____ (2)
-SEC -AICPA
The Code of Professional Conducts requires CPAs in public practice to be independent when performing _____ (2)
-assurance services -audits
The AICPA code of conduct provides _____ (3)
-practical guidance to members in maintaining a professional attitude -assurance to clients and the public that the profession intends to maintain high standards -assurance the profession will enforce compliance to the code by individual members
The PCAOB may conduct investigations of audit firms and may assess _____
1. monetary damages 2. suspension of firms
Match the term with its example 1. direct financial interest 2. indirect financial interest 3. financial interest
1. owning capital stock in a client 2. owning shares of a mutual fund that owns shares of stock in a client 3. owning equity or debt security in a client directly or indirectly
Generally accepted auditing standards are established by the _____
AICPA
The voluntary national organization that establishes standards and rules to guide CPAs in their conduct of professional services is the _____
AICPA
In order for third parties to recover losses due to a CPA's ordinary negligence, the Rosenblum approach requires the third party be _____
a recipient using the statements for routine business purposes
Auditor review of subsequent period invoices to verify all receivables are recorded is verification of ___________ of assets.
completeness
Inherent risk may be high for _____ transactions because they are not part of the normal flow of transactions and specialized skills may be needed to perform the activity
nonroutine
When a public accounting firm has been negligent in rendering services it will:
not be liable for plaintiff losses unless thenegligence caused the loss
According the professional standards, audit documentation should be retained for _____ years
not less than five
AICPA's Auditing Standards are identified under _____ (2)
-SAS number (dates) -AU-C number (topic)
The accounting profession suffered credibility crises in the early 2000's due to _____ (3)
-a record number of restated prior-period financial statements -accounting irregularities at Enron -accounting fraud at WorldCom
CPAs are not allowed to receive a contingent fee for performing services for a client that also engages the CPA to perform _____ (3)
-a review -an examination of prospective financial information -an audit
If auditors identify fraud risks, the auditors may modify their overall approach to the audit by:
-adding specialized audit staff -increasing third-party confirmations
The Sarbanes-Oxley Act of 2002 makes it unlawful for a registered public accounting firm that audits a public company to provide _____ to that client (3)
-bookkeeping or accounting services -internal audit outsourcing services -financial information systems design and implementation
The auditors perform a number of procedures near the completion of the audit including _____
-completing the search to identify contingencies -completing thereview of minutes of meetings -obtaining a representation letter -performing final analytical procedures
In many ethical dilemmas faced by professional accountants, there are _____ (3)
-conflicts between an individual's self-interest and with his or her ethical beliefs -no accounting standards that specifically apply to them -gray areas with no obvious answers
Auditors provide credibility to information for outsiders such as: (3)
-creditors -stockholders -government regulators
The auditors opinion paragraph _____ (2)
-does not guarantee accuracy -is based on an informed opinion, not absolute fact
Which of the following are PCAOB Attestation General Standards? (2)
-due professional care shall be exercised in the planning and performance of the engagement -the engagement shall be performed by a practitioner having adequate knowledge of the subject matter
Significant risks often relate to transactions that are _____
-estimation -nonroutine
The engagement letter should include information regarding _____
-expected form and content of the reports -applicable financial reporting framework -inherent limitation of the audit
Audits are often viewed as falling into three major categories: _____ audits, _____ audits and operational audits
-financial -compliance
Successor auditors seek information from predecessor auditors on communication with the client and those charged with governance regarding:
-fraud and noncompliance with laws and regulations -internal control deficiencies and material weaknesses
Public accounting firm consulting services _____ (3)
-have tended to become more operational in nature in recent years -include performing executive search services -are designed to improve the effectiveness and efficiency of clients' operations
The Code of Professional Conduct includes which of the following conceptual frameworks for situations not explicitly addressed by the Code of Professional Conduct? (3)
-independence for CPAs in public practice -overall for CPAs in public practice -overall for CPAs in business
To gain an understanding of the client, its environment, and internal controls, audits will review the _____
-industry, regulatory, and other external factors affecting the client -nature of the client including the client's application of accounting policies -the client's objectives and strategies and related business risks
Risk assessment procedures include _____
-inquiry of external parties -observation and inspection -analytical procedures
Actions that will not help cpas withstand threats of possible lawsuits include
-maintaining a close personal relationship with client managment -only accepting clients that have been in business for more than one year
Advantages of interim audit work include:
-more uniform workload for the CPA firm -timely release of audited financial statements -increased assessment of internal control
To identify fraud risks, auditors perform a number of procedures including _____
-performing analytical procedures -inquiries of management -considering fraud risk factors
To obtain reasonable assurance, the auditor should: (2)
-plan the work and properly supervise assistants -determine and apply appropriate materiality levels throughout the audit
Then general standards rule requires compliance with the standards and interpretations of _____ (3)
-planning and supervision -due professional care -professional competence
Internal auditors should report to the _____ (2)
-president or high-level executive -audit committee
The auditors' understanding of the nature of the client includes _____
-product lines -competitive position -organizational structure -accounting policies
CPA firms may perform attest services as _____ (4)
-professional corporations -partnerships -sole practitioners -limited liability partnership
When evaluating the significance of a threat, members should consider _____ (3)
-quantitative factors -qualitative factors -safeguards
The PCAOB has the responsibility to (3)
-register public accounting firms that audit public companies -perform inspections of the practices of registered firms -conduct investigations and disciplinary proceedings of registered firms
FOr recurring audits, revision in the terms of the audit engagement may be indicated when there is a change is _____
-reporting requirements -the size of the client -senior management
During an audit, evidence is gathered to show that the _____ (3)
-sales on the income statement actually occurred -balance sheet contains al the liabilities of the company -financial statement amounts are properly classified
Auditors are required to report illegal acts when _____ (2)
-senior management and the Board of Directors do not take appropriate remedial action -the failure to take remedial action is expected to lead to auditor resignation
examples of acts discreditable include _____ (3)
-signing a document containing materially false and misleading information -making materially incorrect entries in a client's financial statements or records -failing to correct financial statements that are materially false or misleading
An Independent Auditors' Report conducted in accordance with International Standards on Auditing may be signed by _____ (2)
-the firm -the auditor
Which of the following items are the same for public and nonpublic company standard audit reports? (3)
-the name used to sign the report -the word "independent" in included in the title -the rules for proper dating of the report
Te PCAOB audit "Basis for Opinion" paragraph describes or alludes to _____ (3)
-the nature of a PCAOB audit -independence requirements -registration requrements
Accountants face ethical dilemmas when a senior auditor _____ (3)
-under reports the number of hours worked on an audit engagement to stay within the time budgeted for the job -is aware that management of the audit client has decided to pollute the environment -accepts tickets to a baseball game from an audit client
Which of the following are items that are identified by the text as conditions indicative of fraud.
-unsupported transactions -unwillingness to allow auditor access to files or testing -missing documents
Relevant assertions include:
-valuation or allocation -completeness -existence of occurrence
Match the appropriate type of entity to the appropriate standard used for audit guidance. 1. Nonpublic companies in the United States 2 Public Company in the United States 3. International companies
1. AICPA Standards 2. PCAOB Standards 3. IAASB Standards
What are covered members?
1. An individual that is part of an attest engagement 2. An individual in the position to influence the attest engagement 3. A partner who provides more than 10 hours of non-attest services
Match the independence concept with its description 1. independence of mind 2. independence in appearance
1. CPA is capable of performing an attest service without being affected by influences that might compromise professional judgment 2. requires the avoidance of circumstances that might cause a reasonable and informed third party, aware of all relevant infomration, including safeguards applied, to reasonably conclude that the integrity, objectivity, or professional skepticism of an audit firm or member of the attest engagement has been compromised
Place in order the highest level of GAAP Authorityfor Federal Governmental entities to the lowest level
1. FASB Statements 2. FASAB Concepts Statements 3. FASAB Technical Bulletins
Place the levels of GAAP Authority for Federal Governmental entities in order from highest to lowest authority
1. GASB Statements 2. GASB Technial Bulletins 3. Accounting textbooks
Match the following elements of Quality Control to the appropriate statements: 1. Monitoring 2. Leadership Responsibilities for Quality 3. Acceptance of Client Relationships
1. The policies and procedures related to quality control are relevant, adequate andoperating efficiently 2. Promotes an internal culture based on the recognition that quality is essential in performing engagements 3. The firm will undertake engagements only where the firm is competent to perform the engagement
Place the following sections of the auditor's report for a nonpublic company in the appropriate order.
1. Title 2. Management's Responsibility 3. Audior's Responsibility 4. Opinion
The advantages of using computer-generated working papers include _____
1. a nearly "paperless" audit can be performed 2. an adjustment can be carried through the current file quicker 3. documents can be scanned
Factors that affect inherent risk include the nature of the:
1. account 2. client 3. client's environment
Sophisticated data analytic skills _____
1. and techniques must be applied on a client-by-client basis 2. must not replace the need to exercise professional judgment
Recalculations _____
1. are used to prove the accuracy of client calculations such as earnings per share 2. include making certain that accounting records agree with the financial statements
Match the assertion with its definition 1. existence or occurrence 2. rights an dobligations 3. completeness 4. cutoff 5. valuation, allocation or accuracy 6. presentation and disclosure
1. assets, liabilities and equity interests exist and recorded transactions and events have occurred 2. company holds rights to the assets , and liabilities are the obligation of the company 3. all assets, liabilities, equity interests, and transactions that should have been recorded have been recorded 4. transactions andevents have been recorded in the correct accounting period 5. all transactions, assets, liabilities, and equity interests are included in the financial statements at proper amounts 6. accounts are described and classified in accordance with GAAP and financial statement notes are complete, appropriate, and clearly expressed
Using the choices provided in Section B, choose the classification of reporting that would most likely be used in the situations given in Section A 1. At year-end a special revenue fund has a $50,000 fund balance on which there are no constraints. 2. Allentown has a $1,000,000 emergency reserve fund it set aside. According to the town ordinance, funds can only be used from this fund with approval of two-thirds of the governing body, which is the town council. 3. Allentown determined that the General Fund has $22,000 in inventory it should report on its fund financial statements. 4. Allentown issued bonds that sold at a premium. Using the authority allowed her by the town council, the city manager made the decision to set aside the $100,000 premium to pay the principal on the debt when it comes due in a future period. 5. The federal government has provided a grant for emergency housing assistance that can only be used for low-income families. Allentown determined $250,000 of the grant funds remained at year-end. 6. Allentown had a balance in its prepaid insurance account of $464,000 at the end of the fiscal year. 7. At the end of the reporting period, Allentown's General Fund statement of revenues, expenditures, and changes in fund balances reported a net change in fund balances of $154,238. 8. Allentown's mayor indicated that he was setting aside $25,000 of funds for the future purchase of land for a town park. 9. The Allentown council passed an ordinance requiring that 5% of the town's sales tax revenue be set aside for economic development; this year that amount was $24,650. 10. The capital projects fund ended the reporting period with a negative fund balance.
1. assigned 2. committed 3. nonspendable 4. assigned 5. restricted 6. nonspendable 7. unassigned 8. assigned 9. committed 10. unassigned
Match the technical body with their primary authority. 1. PCAOB 2. AICPA Auditing Standards Board 3. AICPA Accounting and Review Services Committee 4. FASB
1. auditing and attestation standards for public companies 2. auditing and attestation standards for nonpublic companies 3. compilations, reviews, and attestation standards for services related to unaudited information of nonpublic companies 4. accounting standards for nongovernmental entities
In a breach of contract action, the client must establish the CPA's duty was breached. This can be shown by establishing the:
1. auditor's performance did not meet professional standards 2. auditor did not perform the obligations listed in the engagement letter
Match the test of details type with the example 1. test of account balance 2. test of class of transaction 3. test of disclosure
1. confirmation of accounts receivable balance 2. tests of inventory purchases to determine of properly accounted for
Match the following terms to the correct definitions 1. fraudulent financial reporting 2. misapropriation of assets 3. inherent risk
1. material misstatement of financial statements by management with the intent to mislead financial statement users 2. theft of client assets by an employee or officer of the organization 3. risk of material misstatement of an assertion about an account without considering internal controls
Match the Principle from the AICPA Code of Professional Conduct with its definition 1. responsibilities 2. public interest 3. integrity 4. objectivity and independence 5. due care 6. scope and nature of services
1. members should exercise sensitive professional and moral judgments in all their activities 2. members should accept the obligation to act in a way that will serve the public interest, honor the public trust, and demonstrate commitment to professionalism 3. to maintain and broaden public confidence, members should perform all professional responsibilities with the highest sense of integrity 4. a member should maintain objectivity and be free of conflicts of interest in discharging professional responsibilties. A member in public practice should be independent in fact and appearance when providing auditing and other attestation services 5. member should observe the profession's technical and ethical standards, strive continually to improve competence and the quality of services, and discharge professional responsibilities to the best of the member's ability 6. member in public practice should observe the Principles of the Code of Professional Conduct in determining the scope and nature of services to be provided
Auditing standards require auditors to perform analytical procedures _____
1. near the conclusion of the audit 2. during the risk management
Match the following terms to the correct statements 1. systems portion of the audit 2. substantive test portion of the audit 3. overall audit strategy
1. procedures to assess the effectiveness of the internal controls 2. tests of financial statement account balances 3. defines audit scope, reporting objectives, timing, etc.
Match the following terms to the correct statements. 1. Systems portion of the audit 2. Substantive test portion of the audit 3. overall audit strategy
1. procedures to assess the effectiveness of the internal controls 2. tests of financial statement account balances 3. defines audit scope, reporting objectives, timing, etc.
Match the following statements to the AICPA Generally Acepted Auditing Standards underlying principle: 1. purpose of an audit 2. premise of an audit 3. reporting results of an audit
1. provide financial statement users with an opinion by the auditor on whether the financial statements are presented fairly 2. management is responsible for the preparation of financial statements and must provide auditor with all related reports and documentation 3. auditors express in the form of a written report an opinion whether the statements are presented fairly, in all material respects, in accordance with financial framework
Auditors must:
1. provide reasonable assurance that the financial statements are free of material errors 2. exercise due care and professional skepticism in planning the audit procedures
In evaluating the appropriateness of audit evidence, auditors consider both its ______ and its ______
1. relevance 2. reliability
Match the accounting profession's attribute with the characteristics of a profession 1. CPA is representative of the public 2. abundance of authoritative pronouncements governing financial reports 3. CPA license requires education, experience and passing the CPA exam 4. CPA's product is credibility
1. responsibility to serve the public 2. complex body of knowledge 3. standards of admission to the profession 4. need for public confidence
Match the reviewer with its purpose 1. senior 2. manager 3. in-charge partner 4. second partner review
1. review of work performed by staff assistant to make sure audit procedures performed properly and conclusions are clearly expressed 2. review of work done by staff and senior auditors near the end of the audit to make sure working papers "tie together" 3. review of entire set of working papers to determine audit was performed in accordance with GAAS and provide support for audit report 4. quality review to provide assurance that the CPA firm's in-house quality control policies have been complied with
Actions that will help CPAs withstand threats of possible lawsuits include _____
1. screening potential clients 2. understanding a new client's business 3. using an engagement letter
Significant audit findings or issues that need to be documented include:
1. selection of appropriate accounting principles 2. issues related to accounting estimates 3. accounting for complex and unusual transactions
The Public Company Accounting Oversight Boards requires that auditors emphasize _____
1. significant unusual transactions 2. relationships and transactions with related parties
Under the Securities Act of 1933, the plaintiff (investor) needs to prove that:
1. they sustained a loss 2. the registration statement was misleading
Audit evidence gathered from oral or written inquiries made by the auditor can include _____
1. written representations from company personnel 2. written representations from outside parties 3. oral representations from company personnel
Identify each of the following items as true of the 1933 Act, the 1934 Act or both the 1933 and 1934 Acts
1933 Act: 1. requires auditors to prove due diligence 2. provides protection for initial investors 1934 Act: 1. Offers recourse to any buyer or seller of a security 2. requires auditors to prove good faith Both Acts: 1. Requires proof the financial statements were misleading 2. shifts the burden of proof from plaintiffs to defendants
Firm Independence is impaired if a partner or any professional employee of the CPA firm or immediate family own more than _____ of an attest client's outstanding equity securities
5%
Which of the following is not included in the current PCAOB framework?
AICPA Auditing Standards
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 agency that creates generally accepted accounting principles that form the suitable criteria used in a financial statement audit is the _____
FASB
For each of the following fund types, indicate the fund category by selecting either Governmental funds, Proprietary funds, or Fiduciary funds for each item. 1. Custodial fund 2. Permanent fund 3. Debt service fund 4. Internal service fund 5. Pension (and other employee benefit trust fund) 6. Special revenue fund 7. Enterprise fund 8. General Fund 9. Investment trust fund 10. Capital projects fund 11. Private-purpose trust fund
Fund Category 1. Fiduciary 2. Governmental 3. Governmental 4. Proprietary 5. FIduciary 6. Governmental 7. Proprietary 8. Governmental 9. Fiduciary 10. Governmental 11. Fiduciary
Indepedence requirements for audits of entities that receive federal financial assistance are developed by the _____
GAO
The most frequently used financial reporting framework in the United States is _____
Generally Accepted Accounting Principles
For each fund or government-wide category, select the letter(s) of the applicable fund type or characteristic. Multiple letters may apply to each category. (Select all that apply.) Fund Type or Characteristic a. Operational accountability b. Modified accrual c. Custodial funds d. Statement of cash flows e. Fiscal accountability f. Debt service funds g. Current and noncurrent assets and liabilities h. Internal service funds i. Integrated budgetary accounts j. Revenues and expenses k. Additions and deductions
Governmental funds: b, e, f, i Proprietary funds: a, d, g, h, j Fiduciary funds: a, c, g, k Governmental activities: a, g, h, j Business-type activities: a, g, j
A client still owes the public accounting firm the audit fee for professional services rendered last year and the firm is ready to issue the current year report. Is the CPA firm independent?
No, the public accounting firm's independence is considered tampered
Which of the following statements is correct?
Not all entities undergoing a financial stateement audit have audit commitees
The Sarbanes-Oxley Act of 2002 created the _____ to regulate audits and auditors of public companies
PCAOB
The Auditing Standards Board (ASB) of the AICPA issues auditing standards for the audits of nonpublic companies called _____
Statement on Auditing Standards (SASs)
If a CPA's father owns a material amount of stock in an attest client, which of the following factors is also needed to impair a covered member's firm independence?
The CPA must have knowledge of the stock investment
Choose the type of fund that would most likely be reported in the examples given. a. Construction of public buildings. b. Costs of a central purchasing and warehouse function. c. Gifts in which the principal must be invested and preserved, while the investment earnings must be used to provide scholarships to children of police officers who died in the line of duty. d. Administrative expenses of the city manager's office. e. Assets held for external government participants in the government's investment pool for the purpose of earning investment income. f. Gifts in which the principal must be invested and preserved but the investment earnings can be used for public purposes. g. Costs of operating a municipal swimming pool. h. Taxes collected on behalf of another government unit. i. Assets held in trust to provide retirement benefits for municipal workers. j. Principal and interest payments on general long-term debt. k. Grant revenues restricted for particular operating purposes.
a. capital projects b. internal service c. private-purpose trust d. general e. investment trust f. permanent g. enterprise h. custodial i. pension (and other employee benefit) trust j. debt service k. special revenue
The auditors' opinion paragraph in a public company audit report addresses _____
accounting principles
All of the following are reasons financial statements may depart from GAAP except _____
adherence to accounting principles
Memoranda of the planning process and significant discussions with management are considered _____
administrative working papers
When a publicly traded company purchase a public accounting firm, the organization structure is referred to as a(n) _____
alternative practice
Ron oversees inventory reporting at A+ Fabricating. Ron unintentionally forgets to record a receipt of inventory on December 30, right before the comany's year-end causing an understatement in net income. This oversight is considered _____
an error
Direct evidence as to the reasonableness of various revenues and expenses is provided by the auditor's _____ procedures
analytical
Evaluations of financial statement information by a study of relationships among financial and non-financial data is the basis of (Blank) procedures
analytical
Tests that involve comparisons of financial data of the current year to the prior years, budgets, and industry averages are called ____________ procedures.
analytical
Calculating days sales in ending accounts receivable and comparing it to the prior year would be an example of _____
analytical procedure
The risk that auditors may unknowingly fail to appropriately modify their opinion on financial statements that are materially misstated is called ___________ risk.
audit
NYSE, ASE, and NASDAQ all require listed companies to establish a(n) _____ _____ that consists of at least three independent and financially literate individuals and that increases the auditors' ability to deal independently with management
audit committee
The representation should be dated the same as the date of the _____
auditor's report
Audit working papers are the property of the _____
auditors
During the planning of an audit, auditors must assess the risk of material misstatements due to _____
both errors and fraud
The Securities Exchange Act of 1934 allows _____ to sue the auditors if the audited financial reports are materially misstated
both sellers of stock and subsequent investors
If an accounting firm fails to complete a review according to the engagement letter, which causes the client to suffer financial losses, the client may sue the firm for _______
breach of contract
Many inherent risk arise because of _____ risks faced by management, such as the possibility of material misstatemtndue to fraud
business
Damage to another that is directly attributable to a wrongdoers's act is known as _____
causation
Leo needs to research an accounting issue for a company. The source he would most likely reference first would be the FASB _____
codification
Preparation of financial statements by CPA's based on representations of management, with the expression of no assurance concerning the statements' compliance with generally accepted accounting principles is called a(n) ________________.
compilation
Nonprofit organizations that receive financial assistance from the federal government must arrange for a(n) _____ audit to determine whether the financial assistance is spent in accordance with applicable laws and regualations
compliance
The Code of Professional Conduct includes _____ that address threats to compliance when the COde itself has no specific related guidance
conceptual frameworks
The members of the public accounting profession developed a code of _____ to guide individuals in maintaining a professional attitude and provide assurance of high standards to the public
conduct
The communications between CPAs and their client are _____ but not privileged under common law
confidential
working papers need to be safeguarded because they contain _____ information
confidential client
All of the following are acceptable methods to evaluate the reaonableness of accounting estimates except _____
confirm the estimate with a third party
Fraud that does not involve a misrepresentation with intent to deceive is known as ________________ fraud
constructive
A CPA may redesign a client's payroll system and charge a fee calculated as 25% of the next four years' cost savings, which is called a(n) _____ fee
contingent
As a defense an accounting firm can try to demonstrate the client's _________________ negligence in order to prove the auditor's negligence was not the sole cause of the loss.
contributory
If inherent risk is assessed as low and internal controls seem able to prevent or detect and correct misstatements, the auditors may decide to perform tests of support an assessment that _____ risk is low
control
Further audit procedures include a combination of additional tests of _____ and _____ procedures
controls ; substantive
Documents that substantiate representations contained in theclient's financial statements such as audit confirmations, minutes of director's meetings and client representation letter are known as _____ documents
corroborating
Documents that substantiate representations contained in the client's financial statements such as audit confirmations, minutes of director's meetings and client representation letter are known as _____
corroborating documents
Items that relate to financial statement accounts or disclosures and involve especially challenging, subjective, or complex auditor judgment are called _____ _____ matters.
critical audit
Auditors vouch cash receipt transactions occurring near period end to verify _____ of transactions
cutoff
For a given level of audit risk, __________ risk varies inversely with the risk of material misstatement.
detection
The international audit report is _____ the ASB nonpublic company audit report
different from
If the auditors are unable to determine the overall fairness of the financial statements, they will issue a(n) _____ of opinion
disclaimer of
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
Whenever misstatements due to error or fraud are later found to exist in audited financial statements, it _____ that the auditors were negligent
does not imply
E-mail ordering is an example of EDI or _____ _____ interchange
electronic data
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
The overall risk of association with a particular business is often referred to as ______________ risk.
engagement
These transactions generally have the highest level of inherent risk
estimation
The moral principles and values that govern the actions and decisions of an individual or group is known as _____
ethics
The highest form of assurance that CPAs can offer is provided by a(n) _____ engagement
examination
If the auditors' objective is to test _____, they follow the stream of evidence back to its source
existence
Inspections of tangible assets provide high-quality evidence as to the _____ assertion
existence
The audit committee is responsible for appointment, compensation, and oversight of _____
external auditors
Increasingly generally accepted accounting principles require assets to be valued at _____
fair value
Management makes assertions for financial statements regarding all of the following except:
fairness of the audit
T/F: CPA firms may not advertise their services
false
T/F: Data analytics is not used in most audits because it is often an inefficient procedure that falls the cost-benefit test
false
Forensic accounting services include the investigation of suspected or known _____
fraud
Generally accepted accounting principles _____
have various requirements for the valuation of assets
Obtaining evidence about opening balances is necessary _____
in the first audit of a client
Due to the CPA's responsibility to serve the public, _____ is perhaps the most important concept in the AICPA Code of Professional Conduct
independence
Grace Chin serves on the board of director's of Bliss Company. The standard that prohibits Grace from also auditing the financial statements of Bliss is known as _____
independence
When a covered member is offered employment with an audit client, the CPA firm should remove the CPA from all engagements for that client because it may affect _____
independence
Investors who have sustained large losses can __________ the CPA is at fault:
initiate a lawsuit against a CPA whether or not they believe
The best source of information about the nature of the client is likely to be obtained by _____
inquiries of management and other personnel
A review of a public accounting firm by the PCAOB to ensure compliance with the Sarbanes-Oxley Act of 2002 is called a(n) _____
inspection
Assurance is provided on both the financial statements and the effectiveness of internal control over financial statements in a(n) _____ audit
integrated
Government Accountability Office (GAO) auditors typically perform all of the following type of audits except _____
integrated
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
A covered member's husband is employed by an attest client. The covered member and the CPA firm can still be independent and perform the audit if the husband _____ the attest client
is not in a key position at
In an international audit report, _____ _____ matters are basically equivalent to critical audit matters in a PCAOB report
key audit
PCAOB Standard No. 5 requires _____ to assess and report on company internal controls
management
Many of the duties assigned to partners in smaller firms are performed by _____ in large public accounting firms
managers
Information risk includes an inherent possibility that the financial statements of a client may contain _____ departures from generally accepted accounting principles
material
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
The term _____ is defined as "sufficiently important to influence decisions made by reasonable users of financial statements
material
Inherent risk and control risk are the two components of the risk of _____ _____
material missstatement
When one or more employees or partners in a firm are not independent with respect to a client or potential client, the firm itself _____ lack independence
may or may not
To determine if the ending financial statement balance is correct, auditors _____
may test controls over transactions or test the ending balance directly
In comparing Government Auditing standards regarding independence to those issued by the AICPA, the Governmental Auditing standards are _____
more
John Jones, CPA is a partner in a local firm. His wife works as an administrative assistant for one of the firm's audit clients and holds an immaterial investment in the company's stock through an employee benefit plan. The firm's independence is _____
not impaired because she does not hold a key position
All members of the AICPA and all services provided by the CPA are subject to the integrity and _____ rules
objectivity
watching a process or procedure being performed by others is the definition of _____
observation
Auditors are responsible to obtain reasonable assurance that clients are in compliance with _____
only laws having a direct effect on financial statements
The study of a specific unit of an organization for the purpose is measuring its performance is a(n)
operational
The most reliable piece of documentary evidence created within the client's organization is ordinarily a _____
paid check
In 1993, the U.S. Supreme Court held that accountants cannot be held liable under the RICO act unless they:
participated in the operation or management
A critical evaluation of one public accounting firm's practices by another public accounting firm is called a(n) _____
peer review
When materiality is allocated to a particular account, it is referred to _____ materiality
performance
Much of the information contained in the ______ file is gathered during the course of the first audit of a client's records
permanent
Recent changes are presented in the _____ section of the AICPA Code of Professional Conduct
preface
The fact that rules of conduct apply to all professional services performed except when otherwise stated is made clear in the _____ section of the AICPA Code of Professional Conduct
preface
The profession's recognition of its responsibilities to the public, to clients and to colleagues are addressed in the Code of Professional Conduct _____
principles
CPAs are not liable to any party if they can prove they performed their services with due _____________ ________________
professional care
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
A concept used by certain courts to allocate damages between negligent parties based on the degree to which each party is at fault. The allocation of damages is referred to as _____ liability
proportionate
The Private Securities Litigation Reform Act of 1995 amended the 1934 Act by establishing:
proportionate liability
Under the due diligence standard of the 1933 Act, auditors must:
prove their innocence
Unlike auditors of nonpublic companies, auditors of large public companies are required to _____
provide assurance on the effectiveness of internal controls
The auditors states 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
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) _____ opinion
qualified
As alternatives to a report with an unmodified or unqualified opinion, auditors may issue a report with a(n) _____ opinion, a(n) _____ 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
To prove the arithmetical accuracy of the client's analyses and records, auditors make independent _____
recalculations
For items that are correctly recorded but not fairly presented in the client's financial statements, auditors develop ______ Journal entries
reclassification
The Securities Act of 1933 requires that all companies intending to offer securities for sale to the public to file a(n) __________________ statement, and submit audited financial statements to the SEC
registration
A sophisticated expectation development technique using statistical models to quantify auditor expectations is _____ analysis
regression
In that an explicit expectation is computed for the financial statement amount using financial or nonfinancial data, a reasonableness test is similar to _____ _____
regression analysis
The use of statistical models to quantify the auditors' expectation about a financial statement amount or ratio is called _____ _____
regression analysis
Individuals or entities that may have dealings with the client in which one party is significantly influenced by the other such that it may not pursue its separate interests are known as _____ parties
related
Several specific items, such as the fact that all known liabilities are reflected in the financial statements, are included in the written _____ _____ the CPAs obtain from client officers at the conclusion of the audit
representation letter
The approach that expands auditor liability for ordinary negligence to include third parties who are foreseen users of audited financial statements is:
restatement
Performing consulting services for public company audit clients is
restricted
Because manipulation is one of the most common techniques used in fraudulent financial reporting, professional standards require the auditor to perform risk assessment analytical procedures related to _____
revenue
A type of accounting engagement where the CPA provides limited assurance that the financial statements are in accordance with generally accepted accounting principles is called a(n) _____
review
Which attest engagement is designed to provide only a moderate degree of assurance?
review
The auditors may use the statement of cash flows while obtaining n understanding of the client, as part of _____ analytical procedures
risk assessment
sufficient audit evidence is affected by:
risk of misstatement and reliability of evidence
(1) Incentive or pressure, (2) opportunity and (3) attitude to rationalize the act are the three fundamental conditions of the fraud _____ _____
risk triangle
These transactions involve recurring financial statement activities recorded in the accounting records in the normal course of business restricting inherent risk
routine
The audit procedure that requires an auditor to use professional judgment as they review accounting data to identify significant unusual item is called _____
scanning
The Ernst & Ernst V. Hochfelder case required the plaintiffs to prove _____, or the intent to deceive, manipulate, or defraud on the part of the auditors.
scienter
At the planning stage of an audit, auditors consider materiality to determine their:
scope of the audit
Which of the following is NOT a step involved in making any decision?
select the least costly course of action
The most technical audit working paper review is performed by the _____
senior
On-the-job staff training is one of the major responsibilities of the _____
senior "in-charge" auditor
Preventing the accumulation of excessive staff hours on inconsequential matters is one of the responsibilities of the _____
senior "in-charge" auditor
An approach to liability that requires a defendant found guilty to pay their proportionate share and the share of any defendants that are unable to pay is called joint and _____ liability
several
Silver Corporation is seeking a new auditor due to a disagreementwith the current audit firm regarding a financial statement disclosure. Silver is looking for a new auditor who will provide a clean opinion on the statements. This is known as ______
shopping for accounting principles
An individual or company that has a certain expertise in a field of knowledge other than accounting and auditing is called a(n) _____
specialist
The first position of a college graduate entering the public accounting profession is that of _____ _____
staff accountant
When a governmental unit passes laws and regulations that impose potential liability upon CPA's, __________ liability is developed
statutory
Written law, created by state or federal legislative bodies is called _____ law
statutory
Test of account balances and transactions designed to detect any material misstatements in the financial statements are called _____
substantive procedures
The demand for audits of tax returns is created because
tax returns are self-prepared and may be biased
In a situation in which there is a risk of non-compliance that is not directly addressed in the Code of Professional Conduct, a CPA in business should use _____
the conceptual framework
A plaintiff's losses or damages are dependent upon:
the natre of the engagement performed
During an audit, Jose becomes aware that the client has violated anenvironmental law by disposing of waste inapproriately. jose feels that the violation is intentional and material; and therefore has an obligation to communicate the matter to _____
those charged with governance
As audit working papers are prepared, auditors use several symbols or _____ to identify specific steps in the work performed
tick marks
A basis for estimating fees, communicating areas of high risk and measuring the efficiency of staff is provided by the ____ _____
time budget
The application of performance materiality to a particular audit procedures is _____ ______
tolerable misstatement
Both clients and third parties may sue CPA's for the _____________ of negligence.
tort
The sequence of procedures applied by the company (client) in processing a particular type of recurring event is called a(n) _____ cycle
transaction
The review of changes in an account balance over time is called _____ _____
trend analysis
T/F: Industry specialization is common in large public accounting firms
true
T/F: The two type of assurance services are those that increase the reliability of information and those that involve putting information in a form or context that facilitates decision making
true
T/F: the client's staff can assist the auditors by preparing workingpaers, such as an analysis of accounts receivable written off
true
The most widely cited common law precedent is based on:
ultramares
CPA's may face criminal prosecution:
under security laws and other statutes
A possible fraud concern management _____ of the allowance for doubtful accounts
understatement
Audit procedures _____
vary considerably from one engagement to another
The backbone of the working papers (which is ordinarily an electronic spreadsheet) is the _____
working trial balance