ACCT 4400 Exam 1 (Ch 1, 2, 5)
Which group was established within the FASB to meet accountants' needs for timely guidance on accounting practices and methods?
Emerging Issues Task Force (EITF)
True or false: Inspecting tangible assets provides significant assurance for the rights and obligations assertion.
False
True or false: Auditing standards base the need for substantive procedures for significant account balances on the assessed risk of material misstatement.
False, auditing standards require testing regardless of the assessed risk of material misstatement.
Match each audit procedure example to its correct general objective. Determine the appropriate financial statement presentation and disclosure of the asset
Reviewing subsequent events in an important step
When management states that inventory is carried at lower of cost or market on the balance sheet a(n) ______ assertion is being made.
Valuation
Specific acts performed by the auditor to gather evidence about whether specific assertions are being met are referred to as what?
audit procedures
The audit procedures that will be conducted by the auditor are contained in the what?
audit program
The focus of the auditor's evidence collection efforts are ______.
financial statement assertions
Auditors specially trained in detecting, investigating, and deterring fraud and white-collar crime are called ______ auditors.
forensic
The independent execution by the auditor of procedures or controls that were originally performed by company personnel is called ______.
reperformance
The Sarbanes-Oxley Act ______.
requires public companies to obtain an integrated audit and impacts the duties and practices of public companies
The assets are the rights of the entity, and the liabilities are its obligations.
Rights and obligations
You are auditing a manufacturing company that has a large production facility. Some of the production equipment is held through lease agreements. Which of the following is the account balance assertion you would be most concerned about?
Rights and obligations.
Match each audit procedure example to its correct general objective. Establish that the company has rights to the asset
Rights to cash can be verified by sending a confirmation
Which of the following best describes the concept of audit risk?
The risk that the auditor will provide a "clean" opinion on financial statements that are, in fact, materially misstated.
Financial statements for publicly traded and private companies, partnerships, municipalities, individuals and other types of entities are audited by EXTERNAL or INDEPENDENT auditors.
True
If a misstatement is considered so material that it pervasively affects the interpretation of the financial statements, the auditor will issue an ADVERSE opinion, indicating that the financial statements are not fairly stated and should not be relied upon.
True
The Sarbanes-Oxley Act and the PCAOB standards require that audit documentation be retained for seven years from the date of completion of the engagement.
True
True or false: Although the auditor owns the audit documents, they cannot be shown to outside parties without the entity's consent, except under certain circumstances.
True
True or false: If an auditor fails to exercise due professional care, he or she can be held liable for civil damages or even criminal penalties.
True
Which of the following is NOT a requirement of the Sarbanes-Oxley Act?
A certain number of hours, which is based on the size of the company being audited, must be spent on each audit engagement.
Which assertions may be tested for the "account balances" category of management assertions?
Existence, rights and obligations, completeness, accuracy, valuation, allocation, classification, and presentation.
Auditing services and attestation services are the same
False
The sufficiency of evidence refers to the quality of audit evidence.
False
True or False: The classification assertion refers to transactions and events being recorded in the correct accounting period.
False
True or false: Auditing standards dictate how audit documentation should be organized.
False, standards do not dictate, but the documentation needs to be organized so that any member of the audit team and reviewers can find supporting evidence.
Typically, an external auditor first gets supervisory experience at what level of authority?
Senior
For the following specific audit procedure, indicate the type of audit procedure it represents. Examining large sales invoices for a period of two days before and after year-end to determine if sales are recorded in the proper period.
Inspection of records or documents
An independent, objective assurance and consulting activity designed to add value and improve an organization's operations is the definition of what?
Internal Auditing
Read the stages of an audit listed below and put them in the correct order.
1. Plan the Audit 2. Obtain an understanding of the client and its environment, including internal control 3. Assess the risks of misstatement and design further audit procedures 4. Perform further audit procedures 5. Complete the audit 6. Form an opinion and issue the audit report
For an audit report to be unqualified ______.
client financial statements must be free of material departures from GAAP, the auditor must be independent, there must be no significant limitations imposed on the auditor's procedures, the audit must be done in accordance with applicable standards
Predictive audit data analysis __.
combines firm, industry and market data to help auditors identify numbers that might be off
A confirmation is used to:
verify a representation from a third party.
The reliability of inspection of records and documents depends primarily on ______.
whether the document is internal or external
Audit documentation is referred to as BLANK or the audit file.
working papers
Again, which of the following items are true about the CPA Exam? (Select all that apply)
-Each exam section has a 4 hour time limit - If I don't complete all the sections of the CPA exam that I'm registered for in my NTS BEFORE my NTS expires, I forfeit the fees paid and will have to pay them again - I can take my exams at any Prometric Testing Center in the US, and I can take different exam sections at different Prometric Testing Centers
Which of the following items are true about the CPA Exam? (Select all that apply)
-Your time limit is 4 hours - There are 72 Multiple Choice Questions - There are 8 Task-based simulations - Historical pass rates for the AUD section of the CPA exam are generally between 49-55%, which is lower than REG and BEC, and just slightly higher than FAR
Identify management assertions concerning classes of transactions and events for the period under audit.
Accuracy, Occurrence, Authorization, Completeness
Put the following components of the standard auditors' report in the correct order.
1. Title 2. Introduction 3. Management's Responsibility for the Financial Statements 4. Auditor's Responsibility 5. Opinion
Under current auditing standards, management assertions fall into categories of assertions about ______.
1. account balances and related disclosures at the period end 2. classes of transactions and events and related disclosures for the period audited
Match the following states with the length of their NTS window: Virginia, North Dakota, and South Dakota
12 months
Match the following states with the length of their NTS window: All other states/jurisdictions
6 months
When a significant event occurs that may be of interest to investors, the SEC requires a publicly traded company to file a(n) ______.
8K
Match the following states with the length of their NTS window: Utah, California, and Louisiana
9 months
Match the following states with the length of their NTS window: Texas
90 days from application date
Which of the following words indicate unconditional responsibilities with which the auditor must comply?
Must, Shall, Is required
Which of the following is correct regarding the types of audits over which the ASB and the PCAOB, respectively, have standard-setting authority in the United States?
ASB has standard-setting authority over nonpublic company audits, and the PCAOB has standard-setting authority over public company audits.
The aspects of information reflected in the financial statements are ______ and related disclosures.
Account Balances and Transactions
Assets, liabilities, and equity interests have been included in the financial statements at appropriate amounts, and any resulting valuation or allocation adjustments have been appropriately recorded, and related disclosures have been appropriately measured and described.
Accuracy, valuation, and allocation
Which of the following presumptions is correct about the reliability of audit evidence?
An effective internal control system provides more reliable audit evidence.
The primary objective of final analytical procedures is to:
Assist the auditor in assessing the validity of the conclusions reached on the audit.
These occur when a practitioner is engaged to issue a report on subject matter that is the responsibility of another party.
Attest services
Management stating that all major restrictions on the entity resulting from debt covenants are disclosed in the footnotes and expressed clearly to users of the financial statements is an example of what assertion?
Classification
Based on conversations with the owner-manager of an audit client, the auditor ascertained that the company's primary motivation is to avoid paying income taxes. Based on this motivation, which account balance assertion for ending inventory will the auditor be most concerned about verifying?
Completeness
The accounts and transactions that should be included are included; thus, the financial statements are complete.
Completeness
This assertion address whether all assets, liabilities and equity interests that should have been included as ending balances on the financial statements have been included.
Completeness
ASB and PCASOB standards use which of the following words to describe actions and procedures auditors have a responsibility to consider?
Could, May, and Might
This organization's auditors conduct audits of activities, financial transactions and accounts of the federal government and also assist Congress by performing special audits, surveys and investigations.
GAO
The international counterpart to the FASB is the what?
IASB or International Accounting Standards Board
This organization is a part of the U.S. Treasury Department and its auditors examine and audit the books and records of organizations and individuals to determine their federal tax liability.
IRS
Professional standards require that public accounting firms establish policies and procedures for deciding ______.
If current clients should be retained, and whether to accept new clients
Which of the following statements best describes what is meant by an unqualified audit opinion?
Issuance of a standard unqualified auditor's report indicates that in the auditor's opinion the client's financial statements are fairly presented in accordance with agreed-upon criteria, with no need for the inclusion of qualifying phrases.
Who is responsible for the fair presentation of the financial statements?
Management
In designing written audit programs, an auditor should plan specific audit procedures to test
Management assertions.
Which of the following statements best describes management's and the external auditor's respective levels of responsibility for a public company's financial statements?
Management has the primary responsibility to ensure that the company's financial statements are prepared in accordance with GAAP, and the auditor provides reasonable assurance that the statements are free of material misstatement.
NASBA stands for:
National Association of State Boards of Accountancy
What does NTS stand for?
Notice to Schedule
For the following specific audit procedure, indicate the type of audit procedure it represents. Watching the entity's warehouse personnel count the raw materials inventory.
Observation
This is useful in helping auditors understand the entity's processes but is generally not considered very reliable.
Observation
Which of the following would best be described as an assurance service?
Offering an opinion concerning the accuracy of statements made on an entity's website relating to its online privacy policies.
An audit team generally includes ______.
Partner, Manager, Senior(s), and Staff Members
The Sarbanes Oxley-Act effectively transferred authority to set and enforce auditing standards for public company audits to the ______.
Public Company Accounting Oversight Board
To deter possible recurrence of rule violations and to enhance the quality and reliability of future audits, the ______ can impose sanctions on registered firms.
Public Company Accounting Oversight Board (PCAOB)
For the following specific audit procedure, indicate the type of audit procedure it represents. Performing test counts of the warehouse personnel's count of the raw material.
Reperformance
For the following specific audit procedure, indicate the type of audit procedure it represents. Reviewing the general ledger for unusual adjusting entries.
Scanning
Which of the following is the least persuasive documentation in support of an auditor's opinion?
Schedules of details of physical inventory counts conducted by the entity.
An auditor's analytical procedures performed during the overall review stage indicated that the entity's accounts receivable balance had doubled since the end of the prior year. However, the allowance for doubtful accounts as a percentage of accounts receivable remained about the same. Which of the following explanations most likely would satisfy the auditor?
The entity opened a second retail outlet in the current year and its credit sales approximately equaled the older, established outlet.
Which of the following is true with respect to the auditor's report?
The report indicates that the company's financial statements were audited in accordance with applicable auditing standards.
Sections of an audit report
Title, introduction, management's responsibility for the financial statements, auditor's responsibility, opinion
Which of the following is the most important reason for an auditor to gain an understanding of an audit client's system of internal control over financial reporting?
Understanding a client's system of internal control can help the auditor assess risk and identify areas where financial statement misstatements might be more likely.
When the financial statements are free of material misstatement and the auditor does not find it necessary to specify any exceptions to a "clean" audit opinion, the audit report issued is what?
Unqualified
Substantive procedures
Used to detect material misstatements at the relevant assertion level.
Risk assessment procedures
Used to obtain an understanding of the entity and its environment, including its internal control, to assess the risks of material misstatement at the financial statement and relevant assertion levels.
Match each audit procedure example to its correct general objective. Determine the appropriate valuation of the assets
Vouch the cost of acquisition to paid checks
The current file of the auditor's working papers should generally include:
a copy of the financial statements.
Under ASB and PCAOB standards, the word "should" indicates to the auditor ______.
a responsibility to comply unless alternative actions are sufficient to achieve the objectives of the requirement
Read Me
a. Evaluate the policies and procedures of the Food and Drug Administration in terms of bringing new drugs to market. b. Determine the fair presentation of Ajax Chemical's balance sheet, income statement, and statement of cash flows. c. Review the payment procedures of the accounts payable department for a large manufacturer. d. Examine the financial records of a division of a corporation to determine if any accounting irregularities have occurred. e. Evaluate the feasibility of forecasted rental income for a planned low-income public housing project. f. Evaluate a company's computer services department in terms of the efficient and effective use of corporate resources. g. Audit the partnership tax return of a real estate development company. h. Investigate the possibility of payroll fraud in a labor union pension fund.
In testing the existence assertion for an asset, an auditor ordinarily works from the:
accounting records to the supporting documents.
PCAOB standards require that audit documentation contain ______.
all documents that form the basis of the audit
All audit documentation should have a heading, which includes:
all of these: name of the company under audit, title of the working paper, company's year-end date
Management stating that the cost of plant and equipment is being appropriately depreciated is an example of what assertion?
allocation
An abnormal fluctuation in gross profit that might suggest the need for extended audit procedures for sales and inventories would most likely be identified in the planning phase of the audit by the use of:
analytical procedures.
An investor is reading the financial statements of the Stankey Corporation and observes that the statements are accompanied by an auditor's unqualified report. From this, the investor may conclude that:
any disputes over significant accounting issues have been settled to the auditor's satisfaction.
The audit documentation needs to be organized so that ______ can find the audit evidence that supports each financial statement account.
any member of the audit team, and reviewers
Analytical procedures used in planning an audit should focus on identifying:
areas that may represent specific risks relevant to the audit.
Whether assets, liabilities and equity interests have been recorded in the proper accounts is the concern of the BLANK assertion.
classification
Audit evidence obtained by the auditor as a direct written response to the auditor from a third party in paper form or by electronic or other medium is called a(n) BLANK.
confirmation
The focus of audit evidence collection ______.
depends on the circumstances of the audit
Operational auditing is oriented primarily towards:
efficiency and future improvements to accomplish the goals of management.
Documents originating within the entity but circulated to independent sources outside the entity and documents generated outside the entity are referred to as BLANK documents.
external
When obtaining an understanding of the entity and its environment, the auditor should obtain an understanding of internal controls primarily to:
identify areas of relatively high risk of misstatement and plan the audit accordingly.
A very small difference that is unlikely to affect an investor's decisions in a significant manner is deemed to be ______.
immaterial
Audit documentation is the property of the ______.
independent auditors
Tests of controls ______.
influence the scope of substantive testing, may allow the auditor to gain a degree of assurance over thousands of transactions
Auditors usually use the term BLANK to refer to unwritten questions asked of the entity's personnel or of a third party, and the term BLANK to refer to written requests for a written response from a third party.
inquiry and confirmation
Counting cash on hand and examining inventory are examples of BLANK of tangible assets.
inspection
An independent, objective assurance and consulting activity designed to add value and improve an organization's operations is the definition of ______ auditing.
internal
Duplicate copies of invoices and shipping remittances are examples of ______ documents.
internal
There is a(n) ______ relationship between the sufficiency and appropriateness of audit evidence
inverse
If a client's financial statements include insignificant misstatements that do not cause the financial statements to be materially misstated, the auditor will ______.
issue an unqualified audit report
An audit document that reflects the major components of an amount reported in the financial statements is referred to as a(n):
lead schedule.
Evidence obtained from an independent source from outside the entity is generally viewed as ______ reliable when compared to evidence obtained solely within the entity.
more
The auditor must be independent of the auditee unless:
none of the above—the auditor cannot lack independence. The items above, which were wrong, include: the lack of independence does not influence his or her professional judgement, both parties agree that the independence issue is not a problem, and lack of independence is insignificant
Looking at a process or procedure being performed by others is referred to as what?
observation
Which of these are generally low-reliability types of evidence because they require further corroboration by the auditor?
observation and inquiry
An entity hiring auditors to assess the efficiency and effectiveness of its use of IT resources is an example of a(n) ______ audit.
operational
Preliminary engagement activities include
performing background checks on top management
The reliability of analytical procedures is a function of the ______.
plausibility and predictability of the relationship being tested, availability and reliability of the data used in the calculations, precision of the expectation and the rigor of the investigation
Inquiry may ______.
provide corroborative audit evidence, be formal or informal, provide new audit evidence
The functions of audit documentation are to ______.
provide principal support that the audit was conducted in accordance with GAAS, provide the basis for the review of the quality of work, aid in the planning, performance and supervision of the audit
The SEC requires that the auditor signing an audit report for a public company be a certified ______.
public accountant
The authoritative body designed to promulgate standards concerning a CPA's association with audited financial statements of an entity that is required to file financial statements with the SEC is the:
public company accounting oversight board.
Checking the mathematical accuracy of documents or records is referred to as
recalculation
Footing, crossfooting, reconciling subsidiary ledgers and testing postings are all examples of what?
recalculation
Usually the highest quality audit evidence ______.
relates directly to ending account balances
The auditor's independent execution of procedures or controls that were originally performed by company personnel is referred to as
reperformance
A management statement that the entity is making payments and has control of a leased asset is an example of the ______ assertion.
rights and obligations
Analytical procedures can be used by auditors to accomplish ______ procedures.
risk assessment, substantive analytical, final analytical
Searching for large and unusual items in the accounting records and reviewing transactions for errors are examples of
scanning
The auditor's exercise of professional judgment to review accounting data to identify significant or unusual items to test is referred to as
scanning
The measure of the quantity of audit evidence is referred to as what?
sufficiency
The accuracy of information included in footnotes accompanying the audited financial statements issued by a company whose shares are traded on a stock exchange is the primary responsibility of:
the company's management.
An internal auditor is likely to be more concerned with __________ than the external auditor.
the efficiency of operations
An auditor would issue an adverse opinion if:
the statements taken as a whole do not fairly present the financial condition and results of operations of the company.
Notations that are made by the auditor near, or next to, an item or amount on an audit document that are used to document work performed are called what?
tick marks
The underlying ASB principles of auditing standards apply ______.
to audits under any auditing standards
The assets and liabilities exist, and the recorded transactions have occurred.
Existence or occurrence
For the following specific audit procedure, indicate the type of audit procedure it represents. Comparing the current-year gross profit percentage with the gross profit percentage for the last four years.
Analytical procedures
Which of the following is a type of attest service?
Auditing
Which of the following best describes relationships among auditing, attest, and assurance services?
Auditing is a type of assurance service.
Match each audit procedure example to its correct general objective. Verify the cutoff of transactions
Auditors examine transactions just before and just after year end
Which of the following types of audit evidence is the most persuasive?
Bank statements obtained from the auditee or client
In order to develop and support an audit opinion, the auditor must obtain an understanding of the client's ______.
Business and industry, risks, and information systems
Match each audit procedure example to its correct general objective. Establish the existence of assets
Cash can be verified by physical inspection
For the following specific audit procedures, identify the category and the primary assertion: Sending a written request to the entity's customers requesting that they report the amount owed to the entity.
Category: Account balances Assertion: Existence
For the following specific audit procedures, identify the category and the primary assertion: Examining large sales invoices for a period of two days before and after year-end to determine if sales are recorded in the proper period.
Category: Classes of transactions and events Assertion: Cutoff
For the following specific audit procedures, identify the category and the primary assertion: Comparing the current-year gross profit percentage with the gross profit percentage for the last four years.
Category: account balances Assertion: Accuracy, valuation, and allocation
For the following specific audit procedures, identify the category and the primary assertion: Discussing the adequacy of the allowance for doubtful accounts with the credit manager.
Category: account balances Assertion: Accuracy, valuation, and allocation
For the following specific audit procedures, identify the category and the primary assertion: Reviewing the general ledger for unusual adjusting entries.
Category: account balances Assertion: Accuracy, valuation, and allocation
For the following specific audit procedures, identify the category and the primary assertion: Obtaining a letter from the entity's attorney indicating that there were no lawsuits in progress against the entity.
Category: account balances Assertion: Accuracy, valuation, and allocation/Completeness
For the following specific audit procedures, identify the category and the primary assertion: Agreeing the total of the accounts receivable subsidiary ledger to the accounts receivable general ledger account.
Category: account balances Assertion: Completeness
For the following specific audit procedures, identify the category and the primary assertion: Performing test counts of the warehouse personnel's count of the raw material.
Category: account balances Assertion: Completeness/Existence
For the following specific audit procedures, identify the category and the primary assertion: Watching the entity's warehouse personnel count the raw materials inventory.
Category: account balances Assertion: Completeness/Existence
For the following specific audit procedures, identify the category and the primary assertion: Examining a new plastic extrusion machine to ensure that this major acquisition was received.
Category: account balances Assertion: Existence
For the following specific audit procedures, identify the category and the primary assertion: Tracing the prices used by the entity's billing program for pricing sales invoices to the entity's approved price list.
Category: classes of transactions and events Assertion: Accuracy
Which of the following procedures would an auditor most likely rely on to verify management's assertion of completeness?
Comparing a sample of shipping documents to related sales invoices.
CPA's have a traditional reputation of ______.
Competence, objectivity, and independence
A statement by management that the ending balance of Notes Payable represents the total outstanding notes due at the balance sheet date is an example of what assertion?
Completeness
Your audit client is under intense pressure to meet an earnings target. Which transaction assertion for transactions within the purchasing process are you most concerned with?
Completeness
For the following specific audit procedure, indicate the type of audit procedure it represents. Obtaining a letter from the entity's attorney indicating that there were no lawsuits in progress against the entity.
Confirmation
For the following specific audit procedure, indicate the type of audit procedure it represents. Sending a written request to the entity's customers requesting that they report the amount owed to the entity.
Confirmation
Which of the following best describes the reason why an independent auditor is often retained to report on financial statements?
Different interests may exist between the entity preparing the statements and the persons using the statements, and thus outside assurance is needed to enhance the credibility of the statements.
Match each audit procedure example to its correct general objective. Establish completeness of the recorded assets
Examining shipping documents helps to determine if assets are properly recorded
A management statement that the property, plant and equipment shown on the balance sheet was owned and available for sale at the balance sheet date is an example of what assertion?
Existence
For the following specific audit procedure, indicate the type of audit procedure it represents. Agreeing the total of the accounts receivable subsidiary ledger to the accounts receivable general ledger account.
Inspection of records of documents and/or reperformance
The process of BLANK and BLANK provides a trail from the financial statements to the individual audit documents that a reviewer can easily follow.
Indexing and cross-referencing
For the following specific audit procedure, indicate the type of audit procedure it represents. Discussing the adequacy of the allowance for doubtful accounts with the credit manager.
Inquiry
This is an important audit procedure that is used extensively throughout the audit and is often complementary to performing other audit procedures.
Inquiry
For the following specific audit procedure, indicate the type of audit procedure it represents. Examining a new plastic extrusion machine to ensure that this major acquisition was received.
Inspection of Tangible assets
For the following specific audit procedure, indicate the type of audit procedure it represents. Tracing the prices used by the entity's billing program for pricing sales invoices to the entity's approved price list.
Inspection of records documents and/or reperformance
Which one of the following statements best describes the concept of materiality?
Materiality is largely a matter of professional judgment.
In testing plant and equipment balances, an auditor may physically inspect new additions listed on the summary of plant and equipment transactions for the year. This procedure is designed to obtain evidence concerning management's assertions about classes of transactions and events, and specifically, which assertion?
Occurrence
An attitude that includes a questioning mind and a critical assessment of audit evidence is the definition of what?
Professional Skepticism
Which of the following is not a part of the role of internal auditors?
Providing reports on the reliability of financial statements to investors and creditors.
Which organizations work closely with the SEC when formulating accounting and auditing standards?
Public Company Accounting Oversight Board (PCAOB) and The Financial Accounting Standards Board (FASB)
A client has used an inappropriate method of accounting for its pension liability on the balance sheet. The resulting misstatement is material, but the auditor does not consider its effect to be pervasive. The auditor is unable to convince the client to alter its accounting treatment. The rest of the financial statements are fairly stated in the auditor's opinion. Which kind of audit report would an auditor most likely issue under these circumstances?
Qualified opinion due to departure from GAAP.
Senior/In-charge
Responsible for assigning tasks of associates and directing the day-to-day performance of the audit.
An NTS, or Notice To Schedule, is required in order to take the CPA Exam. Which of the following items concerning an NTS are true?
The NTS lists the specific sections of the CPA Exam you are registered/approved to take in the testing window - The NTS allows you to contact the Prometric testing center to schedule your exam sections - The NTS details the time period/testing window in which you must complete the sections of the exam listed based on your state jurisdiction, -The testing window for an NTS is generally 6 months, but a few states have longer NTS windows -I cannot have more than one open NTS for the same section of the CPA Exam at a time. I must either receive the score for the specific exam section or allow the NTS to expire before I can apply for the same section again and receive a new NTS for that section - You must have your NTS and show two forms of government issued ID that matches the name on your NTS when you take the exam at a Prometric Testing Center
Which of the following best describes why an independent auditor is asked to express an opinion on the fair presentation of financial statements?
The opinion of an independent party is needed because a company is not likely to be considered objective with respect to its own financial statements.
The following statements are true about the study of auditing:
The study of auditing can be valuable to future accountants and business decision makers whether or not they plan to become auditors, The study of auditing focuses on learning the analytical and logical skills necessary to evaluate the relevance and reliability of information, and The study of auditing begins with the understanding of a coherent logical framework and techniques useful for gathering and analyzing evidence about others' assertions.
Which of the following statements about the study of auditing is NOT true?
The study of auditing focuses on learning the rules, techniques, and computations required to analyze financial statements.
For what primary purpose does the auditor obtain an understanding of the entity and its environment?
To plan the audit and determine the nature, timing, and extent of audit procedures to be performed.
You are concerned with unrecorded transactions in the purchasing cycle. Which audit procedure are you most likely to use when auditing purchases?
Tracing vendor invoices to accounting records.
Identify the three different stages in which an auditor can collect evidence in an accounting system to help determine whether the financial statements are fairly stated.
Transactions, Ending account balances, and internal controls
If I want to apply to take the CPA exam, which of the following states will I do an online application through NASBA's CPA Examination Online Application System instead of contacting the State Board of Accountancy?
Utah, Colorado, Alaska
Test of controls
Used to test the operating effectiveness of controls in preventing, or detecting and correcting, material misstatements at the relevant assertion level.
The document that outlines the auditor's understanding of the entity and potential risks as well as the strategy to be followed by the auditor is called the what?
audit plan
What assertion addresses whether the entity owns or controls the assets included on the financial statements, and the liabilities are debts of the entity?
Rights and Obligations
Which act regulates ongoing reporting by companies whose companies securities are listed and traded on a stock exchange or that possess assets greater than $10 million and its equity securities are held by 500 or more persons?
Securities Exchange Act of 1934
Which of the following best describes why an independent auditor is asked to express an opinion on the fair presentation of financial statements
The opinion of an independent party is needed because a company is not likely to be considered objective with respect to its own financial statements.
Preliminary engagement activities include:
All of these: understanding the client and the client's industry, determining audit engagement team requirements, and ensuring the independence of the audit team and audit firm.
The most important function of the ______ is the promulgation of rules and standards that guide audits and related services provided to nonpublic companies, governmental, and other entities.
American Institute of Certified Public Accountants (AICPA)
The FASB's Accounting Standards Codification (ASC) is recognized as the source of US GAAP by the ______.
American Institute of Certified Public Accountants (AICPA), Securities and Exchange Commission (SEC), Public Company Accounting Oversight Board (PCAOB)
Which of the following are true statements regarding audits and auditing standards?
Audits require a great deal of professional judgment, Auditors often have to rely on persuasive rather than conclusive evidence, An audit never has sufficient evidence to guarantee statements are free from material misstatements
Which of the following management assertions are made about both classes of transactions and events and account balances?
Classification, Accuracy, and Presentation
The "4 E's" required to obtain your CPA license are (select all that apply):
Exam, Experience, Education, Ethics
A management statement that the inventory shown on the balance sheet was available for sale at the balance sheet date is an example of what assertion?
Existence
A privately funded body whose mission is to establish standards for financial accounting and reporting is known by the initials . (Enter only one word per blank.)
FASB or The Financial Accounting Standards Board
True or false: Accounting firms that audit the financial statements of nonpublic entities in the United States are required to comply with the auditing standards established by the PCAOB.
False
True or false: Before accepting a new audit client, the auditor is required to conduct a background check on top management.
False
Auditing does which of the following?
Helps one understand how to evaluate assertions, is more conceptual in nature than financial accounting, and focuses on learning the analytical and logical skills necessary to evaluate the relevance and reliability of financial information.
Which of the following best places the events of the last decade in proper sequence?
Increased consulting services to auditees, Enron and other scandals, Sarbanes-Oxley Act, prohibition of most consulting work for auditees, establishment of PCAOB.
The major portion of the AICPA's Code of Professional Conduct identifies actions that may impair auditors' ______.
Independence
The AICPA's Auditing Standards Boards recently completed a major project to converge its auditing standards with the standards of the ______ to the extent possible.
International Auditing and Assurance Standards Board (IAASB)
Which organization issues International Standards on Auditing (ISA) and is the predominantly recognized international auditing standards setter outside the United States?
International Auditing and Assurance Standards Board (IAASB)
The IASB is responsible for the development and publication of ______.
International Financial Reporting Standards
Which of the following would be considered a nonattest assurance service engagement? 1. Expressing an opinion about the reliability of an entity's financial statements. 2. Reporting that a company's sustainability metrics are complete and accurate.
Neither 1 nor 2
Identify the four categories of principles underlying an audit conducted in accordance with generally accepted auditing standards.
Purpose and premise of an audit, Responsibilities, Performance, and Reporting
Which of the following are standards produced by some of the several standing committees housed by the AICPA?
Quality control and peer review Standards, The Code of Professional Conduct, Attestation Standards, Compilation and Review Standards
Partner
Responsible for ensuring that the audit is properly planned and conducted in accordance with applicable auditing standards.
Associate/Staff
Responsible for preparing adequate and appropriate documentation of completed work.
Manager
Responsible for reviewing the working papers, financial statements and audit report.
Which of the following statements regarding accounting firms and auditing standards is correct?
The ASB establishes standards for nonpublic entities and the PCAOB establishes standards for SEC registrants.
For a company, the impacts of purchasing the assurance provided by an audit include ______.
The ability to sell stocks and bonds at a more favorable price, providing assurance to thousands of potential investors, and lower interest rates
Which of the following statements best describes the role of materiality in a financial statement audit?
The lower the level at which the auditor assesses materiality, the greater the amount of evidence the auditor must gather.
Accounting professionals can perform various services that provide assurance about the RELIABILITY and RELEVANCE of information given by one party to another.
True
All auditors, including those auditing public companies, must follow the AICPA's CODE of PROFESSIONAL CONDUCT
True
All professions operate under some type of code of ETHICS or code of CONDUCT
True
Auditing is a type of attest service
True
Because goals may not coincide, there is a natural CONFLICT of INTEREST between managers and absentee owners.
True
Data analytics is rapidly redefining the concepts of discovering and analyzing PATTERNS and ANOMALIES in data.
True
Learning auditing essentially helps to understand how to gather and assess evidence as you can evaluate ASSERTIONS or claims made by others.
True
Reconstructing incomplete or damaged accounting records and probing money-laundering activities are examples of situations that often involve FORENSIC auditors
True
Testing all transactions that occurred during the period is cost prohibitive
True
The purpose of an OPERATIONAL audit is to assess performance, identify areas for improvement, and develop recommendations.
True
True or false: The auditor's report, also known as the audit opinion, is the main product or output of the audit.
True
Understanding management assertions in terms of TRANSACTIONS, ACCOUNT BALANCES and presentation and DISCLOSURE helps the auditor focus on the different types of audit procedures needed to test the assertions.
True
The definition of assurance services focuses on __.
decision making
The PCAOB ______.
is overseen by the SEC, can impose sanctions for rule violations, requires registration of all public accounting firms providing public company audits
