Audit Ch 1

Evidence is paramount to audit and attestation engagements. List the four basic types of audit evidence.

1. Electronic and documentary data about economic transactions 2. Written and electronic communications with outsiders 3. Observations by the auditor 4. Oral testimony of the auditee (client)

What are the five categories of attestation services?

1. audit of historical financial statements, 2. attestation on internal control over financial reporting, 3. review of historical financial statements, 4. attestation services on information technology, 5. other attestation services that may be applied to a broad range of subject matter.

Which of the following services provides the lowest level of assurance on a financial statement?

A review

Recording, classifying, and summarizing economic events in a logical manner for the purpose of providing financial information for decision making is commonly called:

Accounting

Which department provides quantitative information in order for management and others to make decisions?

Accounting

Educational requirements

An undergraduate degree or a graduate degree with a major in accounting is required. Most states now require 150 semester hours for licensure and some states require 150 semester hours before taking the CPA exam.

The three requirements for becoming a CPA include all but which of the following?

Character requirements (does include: Experience requirement, Uniform CPA examination requirement, educational requirements)

Financial statement users often receive unreliable financial information from companies. Which of the following is not a common reason for this?

Each of these choices is a common reason for unreliable financial information (Remoteness of information, Voluminous data, Complex exchange transactions)

Which one of the following is more difficult to evaluate objectively?

Efficiency and effectiveness of operations.

CPA firms are never allowed to provide bookkeeping services for clients.

False

Only companies that file annual statements with the Securities and Exchange Commission are required to have an annual external audit.

False

The Sarbanes-Oxley Act establishes standards related to the audits of privately held companies

False

The criteria used by an external auditor to evaluate published financial statements are known as generally accepted auditing standards.

False

The primary purpose of a compliance audit is to determine whether the financial statements are prepared in compliance with generally accepted accounting principles.

False

The primary role of the United States General Accounting Office is the enforcement of the federal tax laws as defined by Congress and interpreted by the courts.

False

In the audit of historical financial statements, what accounting criteria is most common?

Generally accepted accounting principles

Which of the following audits can be regarded as generally being a compliance audit?

IRS agents' examinations of taxpayer returns.

Difference between an accountant and an auditor

In addition to understanding accounting, the auditor must possess expertise in the accumulation and interpretation of audit evidence.

What risk reflects the possibility that the information upon which the business decision was made was inaccurate

Information

Explain what is meant by information risk, and list the four causes of this risk.

Information risk reflects the possibility that the information upon which the business risk decision was made was inaccurate. Four causes of information risk are: 1. remoteness of information, 2. biases and motives of the provider, 3. voluminous data 4. complex exchange transactions

The Sarbanes-Oxley Act prohibits a CPA firm that audits a public company from providing which of the following types of services to that company?

Most consulting services.

An examination of part of an organization's procedures and methods for the purpose of evaluating efficiency and effectiveness is what type of audit?

Operational audit.

Which of the following is not a SysTrust Services principle as defined by the AICPA?

Operational integrity

Audit Evidence:

Oral Statements made by management, written communications, auditor observation

The Sarbanes-Oxley Act applies to which of the following companies?

Public companies

What is a SysTrust engagement?

SysTrust is a service provided by a CPA to evaluate and test a system reliability in areas such as security and data integrity. There are five principles that must be addressed on a SysTrust engagement: security, availability, processing integrity, online privacy, and confidentiality.

Attestation services on information technology include WebTrust services and SysTrust services. Which of the following statements most accurately describes SysTrust services?

SysTrust services provide assurance on system reliability in critical areas such as security and data integrity.

Differences between audits and reviews

The CPA provides a lower level of assurance for reviews of financial statements compared to the high level for audits, therefore less evidence is needed. A review is often adequate to meet financial statement users' needs. It can be provided by a CPA firm at a much lower fee than an audit because less evidence is needed

Experience requirement

The experience requirement varies from state to state with some states requiring no experience, while other states require up to two years of audit experience.

Uniform CPA examination requirement

This is a four-part, computer-based examination with components on auditing and attestation, financial accounting and reporting, regulation, and business environment and concepts.

Most public companies' audited financial statements are available on the SEC's EDGAR database.

True

Results of compliance audits are typically reported to someone within the organizational unit being audited rather than to a broad spectrum of outside users

True

Section 404 of the Sarbanes-Oxley Act requires public companies to have an external auditor attest to their internal control over financial reporting.

True

The Sarbanes-Oxley Act is widely viewed as having ushered in sweeping changes to auditing and financial reporting.

True

The criteria by which an auditor evaluates the information under audit may vary with the information being audited.

True

What is a WebTrust engagement?

WebTrust is a service provided by a CPA where the CPA provides assurance that the Web Site owner has met established criteria related to business practices, transaction integrity, and information processes.

Any service that requires a CPA firm to issue a report about the reliability of an assertion that is made by another party is a(n):

attestation service

The trait that distinguishes auditors from accountants is the:

auditor's accumulation and interpretation of evidence related to a company's financial statements.

Three common types of attestation services are:

audits, reviews, and attestations regarding internal controls.

An audit to determine whether an entity is following specific procedures or rules set down by some higher authority is classified as a(n):

compliance audit.

In "auditing" financial accounting data, the primary concern is with:

determining whether recorded information properly reflects the economic events that occurred during the accounting period.

Which of the following are required to have a written report regarding the assertion of another party?

financial statement audit, operational audit, compliance audit, attestation engagement; NOT assurance engangement

One objective of an operational audit is to:

make recommendations for improving performance.

What is an engagement to attest on internal control over financial reporting?

management asserts that internal controls have been developed and implemented following well established criteria; Section 404 of the Sarbanes-Oxley Act, which is integrated with the audit of financial statements, increases user confidence about future financial reporting, because effective internal controls reduce the likelihood of future misstatements in the financial statements

Similarities between audits and reviews

management asserts that the statements are fairly stated in accordance with accounting standards

An audit of historical financial statements is most often performed to determine whether the:

none of these choices.

The use of the Certified Public Accountant title is regulated by:

state law through a licensing department or agency of each state.