Auditing Ch 1

In order to reach and justify a conclusion on the fairness of the financial statements, an auditor must obtain evidence that is ______. - appropriate - material - sufficient - readily available

- appropriate - sufficient

The broadest category of independent professional accounting services intended to help decision makers by improving the quality or context of information they use are ______ services. - auditing - attest - assurance

- assurance

Predictive audit data analytics ______. - combines firm, industry and market data to help auditors identify numbers that might be off - presents data to users in ways that match their various needs and interests - allows auditors to analyze and understand enormous sets of information

- combines firm, industry and market data to help auditors identify numbers that might be off

CPA's have a traditional reputation of ______. - financial illiteracy - competence - independence - risk taking - objectivity

- competence - independence - objectivity

Auditors don't test all account balances and transactions due to ______. - cost and infeasibility - auditing standards - time constraints and requirements

- cost and infeasibility - time constraints and requirements

The final phase in the audit process is to ______. - discuss findings with the audit committee - complete the audit - evaluate the results and issue an audit report - audit business processes and related accounts

- evaluate the results and issue an audit report

Auditing is demanded because it ______. - ensures that companies can raise capital - is a form of job security for accountants - is required by federal law for all companies - plays a valuable role in monitoring contractual relationships

- plays a valuable role in monitoring contractual relationships

To ensure the audit is conducted effectively and efficiently it is important to ______. - properly plan the audit - discuss the audit with the board of directors - ensure all audit team members have worked on the audit before

- properly plan the audit

When an auditor reports that the financial statements are fairly stated except for a misstatement identified in the inventory account, a(n) ______ opinion should be issued. - qualified - unqualified - disclaimer of - adverse

- qualified

True or false: Before accepting a new audit client, the auditor is required to conduct a background check on top management.

False Reason: While an auditor may choose to do this is not required. The auditor is required to confer with the predecessor auditor.

True or false: The auditor's report, also known as the audit opinion, is the main product or output of the audit.

True

Oral or visual information, as well as paper or electronic documents that originate either within or outside the organization are all types of ____________ _____________.

audit evidence

A lawsuit in progress against a company is an example of a(n) ___________ _____________ that needs to be considered when completing an audit.

contingent liability

The focus of the auditor's evidence collection efforts are ______.

financial statement assertions

Accounting professionals perform various services that provide assurance about the ________ and _________ of information given by one party to another.

reliability and relevance

The most common type of audit report (opinion) issued by auditors is a(n) ______ opinion. - unqualified - qualified - disclaimer of - adverse

unqualified

Which of the following statements are true. - In 1926 only about 10% of companies on the New York Stock Exchange were audited by independent auditors. - Some forms of accounting and auditing existed in Greece as early as 500 BC. - Audits were in demand long before securities laws required them. - Today audits are rarely utilized in situations where they are not required by law.

- Some forms of accounting and auditing existed in Greece as early as 500 BC. - Audits were in demand long before securities laws required them.

Which of the following have given rise to an explosion in the demand for the assurance provided by auditors? - The development of limited Liability Companies - The development of the corporate form of business - A decrease in the number of sole proprietorships - The expanding world economy

- The development of the corporate form of business - The expanding world economy

When a client's financial statements contain a material misstatement that pervasively affects the interpretation of the financial statements, a(n) ______ opinion should be issued. - unqualified - qualified - adverse - disclaimer of

- adverse

Rapid advances in electronic technologies used by many businesses ______. - facilitates efficient corroboration of the reliability of data - can create automatic audit trails - eliminates many risks associated with the audit

- facilitates efficient corroboration of the reliability of data - can create automatic audit trails **Not eliminates many risks associated with the audit: Reason: Auditors must understand risks associated with the IT structure.

Capital markets allow public companies to raise the investment capital necessary in order to ______. - improve credit ratings - increase managerial compensation - finance research and development - fund equipment needed - fund technology - expand to new markets

- finance research and development - fund equipment needed - fund technology - expand to new markets

The body of an audit report begins with a section that indicates the ______. - financial statement covered by the report - fees collected by the auditor - name of the company being audited - auditor's opinion regarding the fairness of the financial statements - market value of the company's assets and securities

- financial statement covered by the report - name of the company being audited - auditor's opinion regarding the fairness of the financial statements

The title of the audit report refers to the ______ of the public accounting firm that conducted the audit. - integrity - qualifications - objectivity - independence

- independence

Auditing ______. - is more conceptual in nature than financial accounting - helps one understand how to evaluate assertions - focuses on learning the rules, techniques and computations required to prepare and analyze financial information - focuses on learning the analytical and logical skills necessary to evaluate the relevance and reliability of financial information

- is more conceptual in nature than financial accounting - helps one understand how to evaluate assertions - focuses on learning the analytical and logical skills necessary to evaluate the relevance and reliability of financial information

A company's system of internal controls is put in place by a company's ______. - management - internal auditors - external auditors - board of directors

- management - board of directors

The conceptual and procedural details of a financial statement audit build on the fundamental concepts of ______. - materiality - evidence - attestation - assurance - audit risk

- materiality - evidence - audit risk

Most of the auditor's work in arriving at an opinion on the financial statements consists of ______ audit evidence relating to management's assertions. - obtaining and evaluating - preparing and summarizing - discussing - reporting on

- obtaining and evaluating

Increasing use of audit data analytics _______ auditors' ability to ask the right questions and evaluate the answers yielded by the data. - places a greater premium on - reduces the need for the - has no effect on the

- places a greater premium on

In order to develop and support an audit opinion, the auditor must obtain an understanding of the client's ______. - risks - board of directors - business and industry - information systems - internal auditors

- risks - business and industry - information systems

A way to automate mundane tasks that is gaining broader acceptance is ______. - robotic process automation - cloud-based computing - blockchain technology - audit data analytics

- robotic process automation

The audit report is addressed to the ______. - Chief Executive Officer - management and audit committee - shareholders and board of directors

- shareholders and board of directors

Purchasing the assurance provided by an audit ______ the cost of capital for a firm. - generally increases - significantly reduces - does not impact

- significantly reduces

The increased used of data analytics in auditing ______. - requires the auditor to be an expert in technology and computer programming - makes it less important for audit professionals to reason through challenging concepts - streamlines some tedious audit tasks - requires the ability to query, manipulate and interpret information

- streamlines some tedious audit tasks - requires the ability to query, manipulate and interpret information

In a small business, auditors do not examine all transactions due to ______. - the infeasibility of such an extensive audit - the inability to issue the audit report in a reasonable amount of time - the cost of such an extensive audit - materiality assessments

- the cost of such an extensive audit

Professional standards require that public accounting firms establish policies and procedures for deciding ______. - whether to accept new clients - the number of auditors to use for an engagement - how to set their audit fees - if current clients should be retained

- whether to accept new clients - if current clients should be retained

When business owners hire others to manage their business, the demand for auditing can be understood as the need for ______. - benchmarking - performance evaluation - accountability

accountability

Learning auditing essentially helps to understand how to gather and assess evidence so you can evaluate _______________ (or claims) made by others

assertions

Much of what auditors do revolves around collecting and evaluating evidence about management's financial statement ______________.

assertions

A very small difference that is unlikely to affect an investor's decisions in a significant manner is deemed to be ______.

immaterial

The opinion section of the audit report contains the phrase "in all ________ __________" emphasizing the auditor is only responsible for detecting misstatements large enough to affect the decisions of a reasonable financial statement user.

material respects

The amount by which a set of financial statements could be misstated without affecting the judgment of a reasonable person is referred to as

materiality

The basis for opinion section of the audit report emphasizes the fact that the audit provides only _________ __________ that the financial statements contain no material misstatements, whether due to error or fraud.

reasonable assurance

Purchasing the assurance provided by an audit ______ the cost of capital for a firm.

significantly reduces