Ch 1: Intro to Auditing

A

Accountants who are employees of corporations: A. can have job descriptions that include audit functions B. cannot perform audit functions because they are not independent C. must follow the AICPA Code of Conduct if they perform independent audits and issue reports D. can perform operational and fraud audit tasks but not financial audit tasks

C.

An Integrated Audit is: A. required for all companies B. required by the IAASB C. composed of a financial audit and an audit of Internal control over financial reporting D. conducted according to audit standards of the AICPA

A

An Integrated Audit: A. is a systematic process B. is not a systematic process because that definition only applies to a financial statement audit C. uses only GAAP as the established criteria for assessing management's assertions D. uses only the COSO Internal Control Framework as the established criteria for assessing management's assertions

B

An audit of ICFR: A. addresses the same management assertion as a financial statement audit B. is integrated with financial statement audit C. does not result in a audit opinion, the financial statement audit produces the opinion D. is required by all companies

C

Auditing and Accounting: A. are highly related, so if you know one you do not need to know the other as well B. are highly related, because to be a good accountant you have to be a geed auditor C. are highly related, because to be a good auditor you have to be a good accountant D. overlap because accountants and auditors perform similar job functions

B

Auditors of public companies: A. must follow AICPA attest standards when performing integrated audits B. must follow PCAOB Auditing Standards when performing integrated audits C. must follow IIASB standards when performing integrated audits if the company is a multinational corporation D. must adhere to the state laws governing public companies in all states where the company is located

B

Audits are of value because: A. when financial statements are audited, they are accurate B. when financial statements are audited, investors have more confidence in their fairness and reliability C. the IRS accepts them and the company will not have to pay additional taxes D. the PCAOB requires them

A

Audits are performed: A. because they are required and contribute value B. only because they are required C. only when they can improve the operating effectiveness of a company D. because management always wants to have them

audit report

Communicates to F/S users that audit has been performed and states the auditor's opinion

C

Economic event and actions: A. are only important when studying the FASB conceptual framework B. affect accounting but not auditing C. are represented in fairly presented financial statements D. do not impact either accounting or auditing

A

Evidence: A. is composed of various items underlying records of accounts and documents B. must be in written form C. includes records created by the auditor to document the audit activities D. includes only corroborating information obtained from outside the audit client

D

Misstated financial statements: A. result from error B. do not result from fraud because when they do they are called fraudulent financial statements C. are always the result of theft D. should be detected by audits whether they result from error or fraud

1. AICPA - SAS (Non-public) 2. PCAOB - AS (Public)

Name the two auditing standard setters and their standards

American Institute of Certified Public Accountants (AICPA)

Prior the the PCAOB, who did the SEC delegate the responsibility for setting auditing standards to?

C

Shareholders of large multinational companies need audits: A. to be comfortable that management makes good decisions B. because state laws require them C. to have assurance regarding the fairness of financial statements D. because all multinational companies are required by international law to be audited

D

The Auditor: A. can require management to change the financial statements B. can require management to change the report on ICFR C. can change the accounting information included in the SEC filing D. can respond to the financial statements and management's reports by changing the audit report

A

The COSO Internal Control Framework: A. is a set of criteria that the auditor can use to assess whether ICFR are effective B. is a set of criteria used by management, so the auditor does not use it to assess whether ICFR are effective C. is a set of criteria that governs the auditor's procedures in performing the ICFR audit of a public company D. is the source of the requirement that management's report on ICFR be audited

A

The PCAOB: A. is a not-for-profit entity B. shares its responsibility for standard setting with the AICPA C. creates audit standards that CPA firms must use in all audits D. Is independent of SEC oversight

B

The PCAOB: A. uses all the AICPA SAS as the basis for its AS standards for integrated audits B. adopted the AICPA SAS on an interim basis and has replaced some of them with its AS C. adopted the AICPA SAS on an interim basis and has now replaced them all by issuing its own AS D. has adopted the AICPA Code of Conduct and requires auditors to adhere it

C

The SEC and the PCAOB: A. have equal authority B. both have the authority to issue accounting standards C. both have authority over the standards that affect integrated audits D. both have authority over the US stock markets

C

The audit committee: A. elects the BOD B. consist of members of the audit team and management C. is a subset of the BOD D. is the body that governs the company and provides oversight on behalf of shareholders

SOX 2002

What enactment resulted in the SEC structuring the PCAOB?

integrated audit

What type of audit is performed on companies traded on US stock exchange?

D

When performing an audit, the auditor is objective, meaning: A. the auditor is highly skeptical of all documents examined B. the auditor tries to remain suspicious because of the possibility that documents are forged C. the auditor evaluates underlying documents to be sure that management has used a conservative accounting approach D. the auditor is not biased when evaluating evidence supporting management's assertions

D

Which of the following statements is true: A. Enron was a large company that went bankrupt B. Enron participated in complex off-balance sheet transactions C. shareholders did not have appropriate understanding of Enron's transactions D. All of the above are true

to identify areas of concern or risk and because if strong, they can affect the auditor's plan for the f/s audit

Why do auditors consider the internal controls of nonpublic companies?

AICPA

a not-for-profit entity that influences the governance of audits in the US

financial statement audit

a process through which an auditor examines supporting information and evaluates whether the F/S represent the underlying economic events that the company has experienced

audit committee

a subset of the board of directors that is responsible for oversight of the audit function

those that affect a company's assets, liabilities and equity

according to FASB 6 (elements of f/s), what are economic events and actions?

other comprehensive basis of accounting (OCBOA)

accounting records and financial statements prepared in accordance with an accepted method that differs from GAAP (ex: cash or tax basis of accounting)

forensic auditing

an audit function which refers to a situation when an auditor is hired to look for specific and detailed information, usually in the records of a company. Ex: operational auditors who look for errors or fraud in the payment of bills often these are looking for details of fraud

operational auditors

auditors that - rather than focusing on the appropriateness of recorded financial information - assess and evaluate the functioning of the company (efficiency and effectiveness auditors)

yes

can management change their report on ICFR based on the auditor's evaluation?

no (only the audit report)

do auditors write the internal control report?

both (PCAOB added new standards called AS, but they still use the original AS referred to as "interim standards" on their website)

do public or nonpublic companies use (SAS)

yes, the AICPA still sets standards that govern the audits of nonpublic companies

does the AICPA still have any authority over auditing standards?

management

for purposes of an audit, who makes assertions?

shareholders, management and the board of directors

in any business environment, at least 3 major constituencies are interested in the fairness of the f/s (name them)

the financial statements

managements assertions about economic events and actions that affected the company are reflected through..

1. auditor is objective 2. auditor plans audit systematically - obtain/examine evidence underlying mgmt's conclusion regarding effectiveness of ICFR 3. auditor determines whether mgmt's conclusions regarding ICFR correctly correspond with evidence 4. Auditor issues opinion

name the 4 components of the formal definition of auditing as it applies to the ICFR audit

the accounting standards followed (GAAP)

once audit evidence is collected, the auditors task is evaluate whether the evidence and management's assertions correspond, based on established criteria. What is the established criteria for financial statements?

established criteria

once audit evidence is collected, the auditors task is evaluate whether the evidence and management's assertions correspond, based on...

Dodd-Frank (2010)

permanently exempts "non-accelerated" filers from an ICFR audit

10Q

reports that are quarterly filings that contain mgmt reports and quarterly f/s. they are reviewed but not audited

10k

reports that companies file annually with the SEC that contain mgmt reports on ICFR, f/s and auditor reports

Sarbanes-Oxley Act of 2002

requires that an audit of ICFR accompany the financial statement audit of a public company.

effective, efficient

the SEC and PCAOB emphasize that capital markets need to be both ____ and _____

orderly/functioning capital markets

the SEC suggests that one important motivators for requiring public companies to be audited is the need for...

congress

the US Government Accountability Office (GAO) reports to _______ on topics as widespread as the efficiency of contractors working for the government to the effectiveness of programs on which federal funds are spent

SOX, PCAOB

the audit of ICFR is required by _____ and governed by the standards of ______

enron

the large energy company that filed for bankruptcy in late 2001, triggering Congress to enact SOX

audit report

the tangible result of an integrated audit

integrated audit report that does not show problems enhances mgmt's credibility with SH and others, required by SEC for access to US stock exchanges, enables access to various sources of capital at best available cost

what are 3 reasons management benefits from the f/s audit

international standards on auditing

what are the audit standards used globally (not in the US)

International Financial Reporting Standards

what are the financial reporting standards used globally (not in the US)

Auditing Standards (AS)

what are the standards set by the PCAOB called

audit of the financial statements and effectiveness of internal control

what is an integrated audit

to provide the users of f/s with assurance that the f/s are reliable

what is the goal of an integrated audit

the US Government Accountability Office (GAO)

what is the internal financial and operational auditor for the federal government

protecting the shareholder interest

what is the responsibility of the board of directors?

capital markets benefit

what is the value of an audit to society

systematic process

what part of the auditing definition indicates that an audit has a plan of action and specific steps to achieve an outcome?

the securities act of 1933 and the securities exchange act of 1934

what two acts set in motion the establishment of the SEC (name the years too)

internal auditors

what type of auditors often assist with fulfilling the SOX requirement that management conclude and report on the effectiveness of ICFR?

unqualified/clean

what type of opinion is issued in an audit report when the auditor believes that ICFR is effective and F/S are a fair representation

Statements on Auditing Standards (SAS) of the AICPA

when the PCAOB first came into existence, what standards did it adopt as its interim standards?

society, owners and prospective owners, corporate governance, management

who are the main constituents of an audit? (4)

AICPA

who designs and administers the CPA examination

the shareholders

who elects the board of directors?

federal legislation and the SEC

who governs reports (10Q, 10k, etc) issued by public companies as well as independent audit activities in the US (2)

the federal government

who is the ultimate authority for interstate commerce?

international accounting standards board

who sets the international financial reporting standards?

the international auditing and assurance standards board (IAASB)

who sets the international standards on auditing?

because of the operating improvements and cost savings suggested by the audit team

why do some businesses find that an audit pays for itself?

auditing

A systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between those assertions and established criteria and communicating the results to interested users.

established criteria is a benchmark or standard against which the ICFR is compared. One example of established IC standards is the set provided in the: Committee of Sponsoring Organizations (COSO) of the Treadway Commission Internal Control Framework

In audits of ICFR, auditors assess whether the audit evidence supports management's assertions about the effectiveness of ICFR, based on established criteria. What is the established criteria for ICFR