Auditing chapter 2
Organizations design and implement -------- -------systems to capture the details of transactions involved in each business process
1: accounting 2: information
All the people, processes and activities in place to help ensure proper stewardship over an entity's assets is the definition of ----- -----
1:corporate 2:governance
When a significant event occurs that may be of interest to investors, the SEC requires a publicly traded company to file a(n) ______.
8K
The primary organization supporting forensic auditors is the:
ACFE
Global accounting firms formulate their global audit methodologies and policies starting with IAASB standards and add specific requirements from the ----- and------ as necessary
Blank 1: ASB Blank 2: PCAOB
To sign an audit opinion on an entity's financial statements in the United States, an external auditor must be a(n) ----- ------- Accountant.
Blank 1: Certified Blank 2: Public
All auditors, including those auditing public companies, must follow the AICPA's ----- of ------- -------- .
Blank 1: Code Blank 2: Professional Blank 3: Conduct
All auditors, including those auditing public companies, must follow the AICPA's ====of ======= ======= .
Blank 1: Code Blank 2: Professional Blank 3: Conduct
A privately funded body whose mission is to establish standards for financial accounting and reporting is known by the initials --------.
Blank 1: FASB
Auditing and attestation are specialized forms of the general category of ------------ services.
Blank 1: assurance
Assertions companies make about sustainability has led to promising new area of --------------services for auditors.
Blank 1: attest or attestation
An individual who meets the requirements established by the IIA, including passing a uniform written examination can become a(n) ......... -------- auditor
Blank 1: certified Blank 2: internal
When a public accounting firm prepares the financial statements of companies, the services are known as========
Blank 1: compilations or compilation
The extent to which rules, policies, laws, covenants or government regulations are followed by the entity being audited is determined by a(n) audit
Blank 1: compliance
All professions operate under some type of code of ====== or a code of ======= .
Blank 1: ethics Blank 2: conduct
Financial statements for publicly traded and private companies, partnerships, municipalities, individuals and other types of entities are audited by ------- or------- auditors
Blank 1: external Blank 2: independent
Business or employee fraud, criminal investigations involving assets or matrimonial disputes involving the division of assets are examples of situations that may call for a(n) --------audit to be conducted
Blank 1: forensic
Reconstructing incomplete or damaged accounting records and probing money-laundering activities are examples of situations that often involve ------------auditors.
Blank 1: forensic
Employee payroll is the main transaction that affects financial statements in the --- ------ management process
Blank 1: human Blank 2: resource
Employee payroll is the main transaction that affects financial statements in the ------ management process.
Blank 1: human Blank 2: resource
An independent, objective assurance and consulting activity designed to add value and improve an organization's operations is the definition of ---- -----------
Blank 1: internal Blank 2: auditing or audit
An independent, objective assurance and consulting activity designed to add value and improve an organization's operations is the definition of .
Blank 1: internal Blank 2: auditing or audit
The SOX Act of 2002 required public companies to engage an external auditor to provide an opinion on the effectiveness of -------- -----
Blank 1: internal Blank 2: control or controls
To mitigate financial reporting risks to acceptably low levels, management establishes a system of---- ------ over financial reporting
Blank 1: internal Blank 2: control or controls
Regional, national, and international accounting firms are normally structured as ------ ----- partnerships.
Blank 1: limited Blank 2: liability
In the Performance section----------, refers to what procedures are performed ----------, refers to when the audit work is done, and ----------refers to how much work is done.
Blank 1: nature Blank 2: timing Blank 3: extent
The purpose of a(n) ------ audit is to assess performance, identify areas for improvement, and develop recommendations.
Blank 1: operational, performance, or management
Auditors are responsible to maintain an attitude of------- ,-------- which includes having a questioning mind and a willingness to challenge management's assertions.
Blank 1: professional Blank 2: skepticism
The auditor's environment and work performed are clearly shaped by the responsibility to provide--------- --------- with respect to errors, fraud and illegal acts
Blank 1: reasonable Blank 2: assurance
These types of reports summarize the effects of the organization's transactions on its account balances and are used to establish management accountability to outside owners.
Financial
Auditors specially trained in detecting, investigating, and deterring fraud and white-collar crime are called ______ auditors.
Forensic
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
Global accounting firms formulate their global audit methodologies and policies starting with ______.
IAASB standards and add specific requirements from the ASB and PCAOB as necessary
The international counterpart to the FASB is the ------.
IASB
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
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 type of organizational structure provides greater personal protection against lawsuits and ensures that partners are not personally responsible for liabilities arising from other partners' negligent acts?
Limited Liability Partnerships (LLP)
Match the prescribed duties with with the appropriate audit team member.
Partner matches Choice, Responsible for ensuring that the audit is properly planned and conducted in accordance with applicable auditing standards. Responsible for ensuring that the audit is properly planned and conducted in accordance with applicable auditing standards. Associate/Staff matches Choice, Responsible for preparing adequate and appropriate documentation of completed work. Responsible for preparing adequate and appropriate documentation of completed work. Manager matches Choice, Responsible for reviewing the working papers, financial statements and audit report. Responsible for reviewing the working papers, financial statements and audit report. Senior/In-charge matches Choice, Responsible for assigning tasks of associates and directing the day-to-day performance of the audit. Responsible for assigning tasks of associates and directing the day-to-day performance of the audit.
The Sarbanes Oxley-Act effectively transferred authority to set and enforce auditing standards for public company audits to the ______.
Public Company Accounting Oversight Board
The SOX Act of 2002 transferred authority for standard setting, inspection, investigation and enforcement for public company audits from the profession to the ______.
Public Company Accounting Oversight Board (PCAOB)
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)
Identify the four categories of principles underlying an audit conducted in accordance with generally accepted auditing standards.
Reporting Performance Responsibilities Purpose and premise of an audit
The FASB's Accounting Standards Codification (ASC) is recognized as the source of U.S. GAAP by the ______.
Securities and Exchange Commission (SEC) American Institute of Certified Public Accountants (AICPA) Public Company Accounting Oversight Board (PCAOB)
The PCAOB conducts a program of regular inspections to assess the degree of compliance of registered accounting firms with the rules and professional standards of the ______.
Securities and Exchange Commission (SEC) Public Company Accounting Oversight Board (PCAOB) Sarbanes-Oxley Act of 2002
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.
Which of the following are standards produced by some of the several standing committees housed by the AICPA?
The Code of Professional Conduct Quality control and peer review Standards Attestation Standards Compilation and Review Standards
Which organizations work closely with the SEC when formulating accounting and auditing standards?
The Financial Accounting Standards Board (FASB) Public Company Accounting Oversight Board (PCAOB)
Which act prohibits external auditors from providing many forms of non-audit services and consulting work to public companies for which the auditor also provides a financial statement audit?
The Sarbanes-Oxley Act of 2002
True or false: CPAs can offer a variety of services that provide assurance but are not considered auditing or attestation.
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
An audit team generally includes ______.
a manager one or two seniors staff members a partner
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
When an auditor is hired to authenticate the nature and quality of inventory stored in a warehouse, the auditor is providing ______ services.
attest
The body that oversees the internal and external auditing work done for the organization is the ______.
audit committee
An audit of internal control is ______ for private entities.
available but not required
Public accounting firms can be organized as ______.
corporations proprietorships limited liability partnerships general partnerships
ASB and PCASOB standards use which of the following words to describe actions and procedures auditors have a responsibility to consider?
could might may
Understanding areas of weakness in an entity's internal control helps the auditor ______.
focus on areas where misstatements are likely to occur
The overall purpose of a(n) ______ audit is detecting or deterring fraudulent activities.
forensic
The context provided by the entity's business _____ the auditor and the nature of the audit.
greatly impacts
Business organizations hire personnel to perform various functions in accordance with the enterprise's mission and strategy in the ______ process.
human resource management
The Sarbanes-Oxley Act ______.
impacts the duties and practices of public companies requires public companies to obtain an integrated audit
According to "Principles Underlying an Audit", an auditor must avoid actions or relationships that appear to affect ------.
independence
What is the primary organization supporting internal auditors?
institute of Internal Auditors (IIA)
An independent, objective assurance and consulting activity designed to add value and improve an organization's operations is the definition of ______ auditing.
internal
Auditors who are employees of individual companies, government agencies and other entities are called ______ auditors.
internal
The process that varies widely between different types of businesses is ______.
inventory management
The five categories that characterize the processes of most businesses are the ______ processes.
inventory management revenue financing human resource management purchasing
The financing process includes ______.
investing in long term assets providing a return on owners' investments borrowing and repaying funds
A limited liability partnership ______.
is generally governed by laws applicable to general partnerships provides some personal protection against lawsuits
For a manufacturer, the inventory management process includes ______.
making cost adjustments accumulating and allocating costs to inventory
Primary responsibility for maintaining effective internal control and ensuring the fairness of the company's financial statements rests with the ______.
management
While auditors must exercise professional skepticism and due care in their work, the financial statements are ultimately the responsibility of ______.
management
Providing assistance concerning an entity's organization is an example of a(n) ______ service.
management advisory
Public accounting firms can perform accounting-related services for their ______ clients.
nonaudit nonpublic
CPA firms may perform management advisory services for ______ only.
nonaudit clients
An entity hiring auditors to assess the efficiency and effectiveness of its use of IT resources is an example of a(n) ______ audit.
operational
The Sarbanes-Oxley Act prohibits external auditors from ______.
providing many types of consulting work for its auditing clients
The SEC requires that the auditor signing an audit report for a public company be a certified ______.
public accountant
Businesses acquire goods and services to support their operations in the ______ process.
purchasing
An attitude that includes a questioning mind and a critical assessment of audit evidence is the definition of professional -------------- .
skepticism
Businesses obtain capital through ______.
soliciting investments borrowing
The body that is primarily responsible for management oversight in the U.S. corporations is ______.
the board of directors
The underlying ASB principles of auditing standards apply ______.
to audits under any auditing standards
Auditors are responsible ______.
to exercise due professional care to provide reasonable assurance with respect to errors, fraud and illegal acts
True or false: The context provided by the entity's business is a primary aspect of the environment in which financial statement auditing is conducted.
true
The Performance section of Principles Underlying an Audit Conducted in Accordance with GAAS addresses ______.
understanding internal control sufficient, appropriate evidence planning and supervision
The extent to which rules, policies, laws, covenants or government regulations are followed by the entity being audited is determined by a(n) ______ audit.
compliance
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)
Which organization is responsible for grading the CPA exam and plays an important role in administering CPA certification?
American Institute of Certified Public Accountants (AICPA)
Which organization supports accounting and auditing research, produces a number of important publications and provides a wide range of continuing education programs?
American Institute of Certified Public Accountants (AICPA)
The primary organization supporting forensic auditors is the:
Association of Certified Fraud Examiners (ACFE)
Which of the following are true statements regarding audits and auditing standards?
Audits require a great deal of professional judgment. An audit never has sufficient evidence to guarantee statements are free from material misstatements. Auditors often have to rely on persuasive rather than conclusive evidence.
Which of the following are the "Three E's" of state requirements for the CPA certification?
Examination Experience Education
Independent auditors are also called ______ auditors.
External
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: Certified Fraud Examiners generally have professional backgrounds in either auditing or some other type of accounting
False
True or false: Certified Fraud Examiners generally have professional backgrounds in either auditing or some other type of accounting.
False
Management engages in the five business processes to ______.
achieve objectives implement strategies
The PCAOB ______.
can impose sanctions for rule violations is overseen by the SEC requires registration of all public accounting firms providing public company audits
A system or code of conduct based on moral duties and obligations that indicate how we should behave is referred to as------.
ethics
True or false: In the purchasing process, businesses must sell goods and services to support their operations.
false
Management establishes controls to ensure that sales and collection transactions are appropriately handled as part of the ----------process.
revenue
Management establishes controls to ensure that sales and collection transactions are appropriately handled as part of the ______ process.
revenue
