Auditing and Assurance Services Chapter 1

valuation and allocation

Comparing vendor invoices to inventory prices, obtaining lower of cost or market data and recalculating depreciation schedules relate to the ___________ assertion.

b. understandability

Considering whether disclosures have been written in plain English tests the assertion of: a. existence b. understandability c. completeness d. presentation

a. valuation c. existence e. completeness

Cutoff procedures provide evidence about: a. valuation b. rights and obligations c. existence d. occurrence e. completeness

a. certified internal auditor (CIA) c. certified fraud examiner (CFE) d. certified forensic accountant (CFA)

Designations for accountants within public accounting other than a CPA include: a. certified internal auditor (CIA) b. certified management accountant (CMA) c. certified fraud examiner (CFE) d. certified forensic accountant (CFA)

complexity; consequences

Environmental conditions that increase user demand for relevant and reliable information include __________, remoteness, time sensitivity, and _______________.

b. are provided to external auditors but often not to internal auditors

Explicit representations: a. are provided to internal auditors but often not to external auditors b. are provided to external auditors but often not to internal auditors c. must be developed by all types of auditors d. are provided to all types of auditors

a. presentation and disclosure b. account balances c. transactions and events

Financial statements contain management's assertions about: a. presentation and disclosure b. account balances c. transactions and events d. management effectiveness

context

For assurance services, improving the quality or __________ of information refers not to the information itself, but to how the information is used in decision making.

c. IFRS d. GAAP

For independent auditors, established criteria essential for effective communication may be found in: a. IRS code b. Regulatory agency rules c. IFRS d. GAAP

professional skepticism

Having an attitude that "includes a questioning mind and a critical assessment of evidence" is the definition of ____________ _______________.

c. investors and creditors

High-quality information to make educated financial decisions is demanded by: a. information professionals b. auditors c. investors and creditors

a. regulatory

IRS agents and state and federal bank examiners are examples of ___________ auditors. a. regulatory b. external c. public d. internal

d. client's year-end balance sheet date

In auditor jargon, the cutoff date generally refers to the: a. evidence collection end date b. date the audition opinion of issued c. date the audit engagement begins d. client's year-end balance sheet date

- review internal control systems to ensure compliance with company policies - review the effectiveness of achieving results compared to established objectives - perform audits of financial reports for limited external distributions

Internal auditors: - review internal control systems to ensure compliance with company policies - review the effectiveness of achieving results compared to established objectives - perform audits of financial reports for limited external distribution - examine evidence and issue an opinion on the fairness of financial statements

rights and obligations

Obtaining evidence about estimated liabilities relates to the ____________ assertion.

- a type of assurance service provided by public accounting firms - integral to internal auditing - performed by both internal ad external auditors

Operational audits are: - a type of assurance services provided by public accounting firms - integral to internal auditing - often provided by external auditors to their public audit clients as part of the annual audit - performed by both internal and external auditors

d. compilation

Preparing financial statements from a client's books and records without performing any evidence-gathering work is a(n): a. assurance service b. attestation c. review d. compilation

Attestation

Providing assurance for specific management assertions is referred to as _____________.

c. lending credibility to information

Providing assurance is: a. opining on specific management assertions b. performing a compilation c. lending credibility to information d. supplying an opinion as to the fairness of financial statements

financial reporting

Providing balance sheets, income statements, and statements of shareholders' equity, comprehensive income, and cash flow is the function of ____________ ___________.

a. data analytics and technology

Rapid changes in the business world has led to the need for entry-level auditing professionals to have proficiency in: a. data analytics and technology b. complex IRS rules and regulations c generally accepted accounting principles

b. consulting services that require auditors to make managerial decisions d. services that would result in a firm auditing its own work

Sarbanes-Oxley prohibits public accounting firms from performing: a. consulting services for companies they do not audit b. consulting services that require auditors to make managerial decisions c. any type of consulting services to public companies d. services that would result in a firm auditing its own work

b. correctness of financial statements d. effectiveness of internal controls for financial reporting

Sarbanes-Oxley requires that upper management certify the: a. qualifications of the external audit team b. correctness of financial statements c. education of internal auditors d. effectiveness of internal controls for financial reporting

- internal audit outsourcing - investment services - legal and expert services - actuarial services

Services that public accounting firms are prohibited from providing to audit clients under Sarbanes-Oxley include: - internal audit outsourcing - corporate tax return preparation advice - investment services - legal and expert services - actuarial services

- management or human resource services - financial information system design and implementation - bookkeeping and related services - appraisal or valuation services

Services that public accounting firms are prohibited from providing to audit clients under Sarbanes-Oxley include: - management or human resource services - financial information system design and implementation - tax return preparation advice - bookkeeping and related services - appraisal or valuation services

c. provides tax services to key executives

The PCAOB argues that auditor independence would be impaired if the firm: a. provides any type of tax advice to the company b. prepares the company's corporate tax return c. provides tax services to key executives

- provides tax services for key company executives - consults on "listed" transaction tax strategies - accepts fees that are based on tax outcomes

The PCAOB prohibits an accounting firm from providing auditing services to a public company if the accounting firm: - provides tax services for key company executives - provides normal tax advice to the company - consults on "listed" transaction tax strategies - accepts fees that are based on tax outcomes

b. performs inspections of completed audit work c. sets all audit standards for audits of public companies d. inspects audit firms' quality control processes

The Public Company Accounting Oversight Board (PCAOB): a. passed the Sarbanes-Oxley Act in 2002 b. performs inspections of completed audit work c. sets all audit standards for audits of public companies d. inspects audit firms' quality control processes

a. provides a wide range of performance audits b. emphasizes the accountability of public officials in regards to public funds and other resources c. provides a compliance audit function with respect to laws and regulations

The U.S. Government Accountability Office (GAO): a. provides a wide range of performance audits b. emphasizes the accountability of public officials in regards to public funds and other resources c. provides a compliance audit function with respect to laws and regulations d. performs attestation engagements but not financial audits

a. auditors may be considered the highest level of internal auditors for the federal government b. is headed by the U.S. Comptroller General d. is organizationally independent of the agencies it audits

The U.S. Government Accountability Office (GAO): a. auditors may be considered the highest level of internal auditors for the federal government b. is headed by the U.S. Comptroller General c. is an agency of the United States Federal Judicial Branch d. is organizationally independent of the agencies it audits

allocation; accuracy

The appropriate percentage of an asset or liability balance being recorded on the income statement in accordance with GAAP or IFRS is referred to as ________ and ________ refers to the appropriate recording of related transactions.

existence; occurence

The assertions about the actuality of each balance sheet and income statement balance is ___________, while ______________ asserts that each event and transaction actually happened.

assurance

The broadest set of information, including nonfinancial information is covered by ____________ services.

business

The chance that customers will buy from competitors or product lines will become obsolete are examples of __________ risk.

b. includes determining if all expenses are recorded c. requires the auditor to obtain persuasive evidence

The completeness assertion: a. may be verified by management representation only b. includes determining if all expenses are recorded c. requires the auditor to obtain persuasive evidence

d. financial statement assertions

The focal point for audit procedures are the key questions that must be answered about management's: a. internal control procedures b. potential conflicts of interest c. hiring and promotional practices d. financial statement assertions

operational

The goal of ___________ auditing is to help managers discharge their management responsibilities and improve profitability.

c. conflict of interest

The incentive for company management to provide overly optimistic information results in a potential ________ between information providers and users. a. information risk b. natural skepticism c. conflict of interest d. audit risk

compilation; review

The most common attestation engagements are _____________ and _______________.

- has more task-based activities - has an increased emphasis on critical thinking

The new CPA exam: - is now 14 hours instead of 16 - has more task-based activities - has an increased emphasis on critical thinking

internal

The objective of ______ auditing is to help an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes.

a. includes an estimate for product warranty b. includes ensuring proper footnote disclosure

The obligation assertion: a. includes an estimate for product warranty b. includes ensuring proper footnote disclosure c. only includes accounting liabilities the company is legally obligated to currently pay

d. includes capitalized lease property

The ownership assertion: a. does not apply to intangible assets b. extends to accounting liabilities the company is not yet obligated to pay c. only includes assets for which the company holds the title d. includes capitalized lease property

business risk

The possibility that an entity will fail to meet its objectives is _____________ ______________.

d. information

The probability that data circulated by a company will be false or misleading is __________ risk. a. reliability b. business c. consequence d. information

Information Risk

The probability that data circulated by a company will be false or misleading is _____________ _______________.

c. Sarbanes-Oxley

This Act was passed in 2002 as a direct response to several financial statement frauds. a. Foreign Corrupt Practices b. Public Company Accounting Oversight c. Sarbanes-Oxley d. Dodd-Frank

a. timely c. reliable d. relevent

To minimize business risk and take advantage of opportunities, CEOs demand information that is: a. timely b. positive c. reliable d. relevent

sustainability

Today activist shareholders are increasingly pressuring boards and upper management teams regarding social responsibility, the environment, and other issues related to ___________________.

True

True or False: Auditing is critical to help ensure the liquidity of the world's capital markets.

False

True or False: Providing assurance is a form of attestation.

True

True or False: Understanding management assertions is a key component of planning an audit.

False

True or False: When considering established criteria for effective communication, external auditors rely on financial and managerial models of efficiency and effectiveness.

c. existence

Verifying accounts receivable balances with customers and counting physical inventories are done to test the _______ assertion. a. occurrence b. presentation and disclosure c. existence d. valuation and allocation

review

When a CPA performs a(n) _______________, limited-evidence gathering work is done, but the scope is narrower than in an audit.

attestation engagement

When a practitioner is engaged to issue a report on a subject matter or an assertion about subject matter that is the responsibility of another party is a(n): _________ _________

auditing

When assertions are embodied in a company's financial statements, the attestation is referred to as ___________.

assertions

When audit procedures are specified, the evidence produced by each procedure must relate to one or more specified management __________________.

b. investor and creditor confidence is shaken

When audit quality is compromised: a. public companies will refuse to use external auditors b. investor and creditor confidence is shaken c. information provided will not be understandable

a. disclosures are fairly presented b. reported liabilities are complete c. revenue transactions on the income statement occurred d. inventory on the balance sheet exists

When management provides an independent auditor with prepared financial statements, they are making assertions that: a. disclosures are fairly persented b. reported liabilities are complete c. revenue transactions on the income statement occurred d. inventory on the balance sheet exists e. financial statements are error-free

a. assess external financial reporting risk

When planning the audit engagement, auditors use management assertions to: a. assess external financial reporting risks b. render an opinion on the effectiveness of internal controls c. develop an opinion on the fairness of financial statements

c. The consumers of assurance services may be either a very small or very large targeted group. d. An assurance engagement is a type of professional service.

Which of the following statements are correct? a. For assurance services, improving the context of information refers to the information itself. b. Objectivity is not important when performing assurance services. c. The consumers of assurance services may be either a very small or very large targeted group. d. An assurance engagement is a type of professional service.

a. assurance services involve lending credibility to both financial and nonfinancial information c. Financial statement auditing is the dominant assurance service provided by CPA firms

Which of the following statements are correct? a. assurance services involve lending credibility to both financial and nonfinancial information b. CPAs who provide auditing services are prohibited from providing other types of assurance services c. Financial statement auditing is the dominant assurance service provided by CPA firms d. The AICPA does not support non-auditing assurance services

a. auditors must not accept management assertions without corroboration b. documentary evidence is required to prove each management assertion

Which of the following statements are correct? a. auditors must not accept management assertions without corroboration b. documentary evidence is required to prove each management assertion c. auditors want to present a company's financial condition in the best possible light d. conflicts of interest between auditors and company management only exist in first year audits

- auditing and assurance services are the largest source of revenue for most of the Big 4 accounting firms - traditional financial statement audits are the most frequent assurance engagement requested by most medium nonpublic companies

Which of the following statements are correct? - The level of auditing activity provided increases as the size of the public accounting firm decreases. - Auditing and assurance services are the largest source of revenue for most of the Big 4 accounting firms. - Larger CPA firms usually provide more nonaudit and attestation services for their clients than smaller firms. - Traditional financial statement audits are the most frequent assurance engagement requested y most medium nonpublic companies.

b. Some public accounting firms describe their organizations as professional service firms

Which of the following statements is correct? a. A public accounting firm is required to designate itself as a CPA firm b. Some public accounting firms describe their organizations as professional service firms

b. assurance

Which of the following types of services relate to a broad set of information, including nonfinancial information? a. attestation b. assurance c. auditing

a. requirements vary across states c. is required to become certified

Work experience: a. requirements vary across states b. is required to sit for a professional exam c. is required to become certified d. must be obtained in a CPA firm

internal

"An independent, objective assurance and consulting activity designed to add value and improve an organization's operations" is the definition ___________ auditing.

cutoff

A company's year end was Tuesday, December 31. On Friday, January 3 the entire payroll for the week was recorded as an expense. This is an example of a(n) _____________ error.

systematic process

According to the American Accounting Association, auditing is a(n) __________________ __________________ of objectively obtaining and evaluating evidence.

cutoff

Accounting for transactions in the proper period is referred to as _________

evidence

All types of information that guide auditors' decisions and relation to management assertions about economic actions and events is known as _____________.

c. attestation engagement

An audit is a specific type of: a. assertion b. explicit representation c. attestation engagement d. internal control

a. classification

Analyzing repair and maintenance expenses to ensure they should not have been capitalized test for the assertion of proper: a. classification b. cutoff c. allocation d. rights and obligations

occurrence; existence

As a general rule the ________ assertion relates to events, transactions, presentations and footnote disclosures and the __________ assertion relates to account balances.

150; 120

As the year 2020 approaches, most states require students to take _____________ semester hours of college before receiving a CPA certificate, but some states allow students to take the CPA exam after only ___________ semester hours of college.

a. customer satisfaction surveys b. regulatory compliance c. internal audit outsourcing e. cyber risk assessment

Assurance services include: a. customer satisfaction surveys b. regulatory compliance c. internal audit outsourcing d. consulting services e. cyber risk assessment

d. supplying an opinion as to the fairness of financial statements

Auditing is: a. opining on specific assertions made by management b. lending credibility to information c. performing a compilation d. supplying an opinion as to the fairness of financial statements.

a. has a logical conclusion b. has a logical starting point c. proceeds along established guidelines

Auditing: a. has a logical conclusion b. has a logical starting point c. proceeds along established guidelines d. is unplanned and unstructured

Occurrence

Auditors complete procedures to ensure reported sales transactions were not created to fraudulently inflate profits to in order to test the ____________ assertion.

existence

Auditors verify accounts and count physical inventories to test the ________________ assertion.

a. state boards

CPA certificates and licenses to practice are issued by: a. state boards b. the AICPA