Ch 1 & Mod A LearnSmart
In connection with examination engagements for compliance, accountants are required to consider ______ risk, ______ risk and ______ risk.
- inherent - control - detection
Services that public accounting firms are prohibited from providing to audit clients under Sarbanes-Oxley include ______.
- investment services - actuarial services - internal audit outsourcing - legal and expert services
Professional skepticism ______.
- is a manifestation of objectivity - allows auditors to check if accounting rules were properly followed and applied
The auditor's report on a single statement or elements, accounts or items ______.
- is similar to the auditor's standard report on the complete set of statements - expresses an opinion regarding if it is fairly stated in accordance with GAAP
To conduct an engagement related to compliance, ______.
- management must accept responsibility - evaluation and measurement against reasonable criteria must be possible - sufficient evidence must be available to support management's evaluation
Broker-dealers who do not hold customer funds ______.
- must file an exemption report - still must provide auditors some degree of assurance
A preparation of financial statement engagement requires ______.
- no procedures be performed - "no assurance is provided" on each page of the statements
When performing a compilation engagement, the accountant should ______.
- not express any assurances - read the financial statements
As a general rule the ______ assertion relates to events, transactions, presentations and footnote disclosures and the ______ assertion relates to account balances.
- occurrence - existence
The U.S. Government Accountability Office (GAO) ______.
- provides a compliance audit function with respect to laws and regulations - emphasizes the accountability of public officials in regards to public funds and other resources - provides a wide range of performance audits
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 - accepts fees that are based on tax outcomes - consults on "listed" transaction tax strategies
A part of presentation and disclosure is the assertion that disclosures must be ______, ______, and understandable or transparent to financial statement users.
- relevant - reliable
The completeness assertion ______.
- requires the auditor to obtain persuasive evidence - includes determining if all expenses are recorded
Internal auditors ______.
- review internal control systems to ensure compliance with company policies - perform audits of financial reports for limited external distribution - review the effectiveness of achieving results compared to established objectives
The Public Company Accounting Oversight Board (PCAOB) Blank______.
- sets all audit standards for audits of public companies - inspects audit firms' quality control processes - performs inspections of completed audit work
The auditor considers the relevance of each financial statement assertion, one at a time, after the ______ ______ and disclosures have been identified.
- significant - accounts or account
Environmental conditions that increase user demand for relevant and reliable information include ______.
- time sensitivity - consequences - complexity
To minimize business risk and take advantage of opportunities, CEOs demand information that is ______.
- timely - reliable - relevant
Financial statements contain management's assertions about ______.
- transactions and events - account balances - presentation and disclosure
When performing a compilation engagement, the accountant should ______.
- understand the entity's business - obtain an engagement letter
Rule 17a-5 requires the broker's or dealer's compliance report includes assertions that the broker-dealer ______.
- was in compliance with the net capital rule at fiscal year-end - was in compliance with the reserve requirement rule at fiscal year-end - had effective internal control over compliance during the year and at year-end
When audit procedures are specified, the evidence produced by each procedure must relate to one or more specific management ______.
assertions or assertion
When planning the audit engagement, auditors use management assertions to ______.
assess external financial reporting risks
"Independent professional services that improve the quality of information, or its context, for decision makers" is the definition of ______ services.
assurance
The broadest set of information, including nonfinancial information is covered by ______ services.
assurance
Verifying Academy Award vote counts, the accuracy of advertisements or investment performance statistics are examples of ______ services provided by CPA firms.
assurance
Which of the following types of services relate to a broad set of information, including nonfinancial information?
assurance
Providing assurance for specific management assertions is referred to as ______.
attestation
An audit is a specific type of ______.
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, it is a(n) ______ ______.
attestation engagement
An engagement in which a practitioner is engaged to issue or does issue an examination, review or agreed-upon procedure is referred to as a(n) ______ service.
attestation or assest
Historical or prospective performance, physical characteristics and break-even analyses are all potential ______ engagement subjects.
attestation or attesting
When assertions are embodied in a company's financial statements, the attestation is referred to as ______.
auditing
Assembling a set of financial statements from account information supplied by the entity's management without providing any assurance on the accuracy or completeness of the information is a(n) ______.
compilation
Assisting in the preparation of financial information without providing any assurance or accuracy on the completeness of the information is the purpose of a(n) ______ engagement.
compilation
Preparing financial statements from a client's books and records without performing any evidence-gathering work is a(n) ______.
compilation
Obtaining evidence to determine that all inventory, accounts payable, notes payable and expenses are included on the financial statements relates to the ______ assertion.
completeness
The incentive for company management to provide overly optimistic information results in a potential ______ between information providers and users.
conflict of interest
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.
context
Auditors typically verify cash with banks and count the physical inventory, verify accounts receivables and insurance policies with customers, and perform other procedures to obtain evidence to test the ______ assertion.
existance
Auditors verify cash with banks and count physical inventories to test the ______ assertion.
existence
The focal point for audit procedures are the key questions that must be answered about management's ______.
financial statement assertions
Prospective financial information based on expected conditions and courses of action is a financial ______.
forecast
Management assertions about financial statement presentation and disclosure are primarily found ______.
in the footnotes
The ownership assertion ______.
includes capitalized lease property
The probability that data circulated by a company will be false or misleading is ______ risk.
information
The probability that data circulated by a company will be false or misleading is ______ ______.
information risk
"An independent, objective assurance and consulting activity designed to add value and improve an organization's operations" is the definition of ______ auditing.
internal
Helping an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes is the objective of ______ auditing.
internal
Entry-level audit professionals in today's environment need to first learn how to make the best use of ______.
internal data and information produced by the entity
Payroll processing companies, bank trust departments and computerized information processing centers are all examples of ______ organizations.
service
Special-purpose framework financial statements ______.
should not use titles normally associated with GAAP statements
If there is a reasonable possibility that an account or disclosure could contain a misstatement that is material, the account or disclosure is identified as ______.
significant
Internal auditing work is ______ the work performed by external auditors.
sometimes similar to
Other comprehensive bases of accounting (OCBOA) are also known as ______ ______ frameworks.
special purpose
Tax basis, cash basis and modified cash basis are all example of ______ ______ frameworks.
special purpose
Auditing is ______.
supplying an opinion as to the fairness of financial statements
According to the American Accounting Association, auditing is a(n) ______ ______ of objectively obtaining and evaluating evidence.
systematic process
The examination of internal control over compliance under Rule 17a-5 covers controls ______.
throughout the fiscal period and at year-end
Entities that are required to report compliance with contractual obligations to third parties may request auditors ______ a GAAS financial statement audit.
to report on compliance based on procedures performed during
To define a set of professional attestation and advisory services based on a core set of principles and criteria that addresses the risk and opportunities of IT-enables systems and privacy programs, the AICPA has adopted the term ______ ______.
trust services
Sarbanes-Oxley requires that ______ must certify the correctness of financial statements and the effectives of the internal control system.
upper management
Comparing vendor invoices to inventory prices, obtaining lower of cost or market data and recalculating deprecation schedules relate to the ______ assertion.
valuation and allocation
An attestation engagement that is similar in substance to an audit, but may be limited in terms of focus is called a(n) ______.
examination
When audit teams are asked to report on compliance issues as part of a GAAS audit, the report on compliance must ______.
- indicate the communication of compliance is intended for specific parties - indicate the audit was not directed towards identifying noncompliance - indicate a GAAS audit was conducted
Which of the following statements are correct?
- Assurance services involve lending credibility to both financial and nonfinancial information. - Financial statement auditing is the dominant assurance service provided by CPA firms.
______ asserts that each of the balance sheet and income statement balances actually exist, while ______ asserts that each of the income statement events and transactions actually did occur in the proper period.
- Existence - occurrence
Minimum items in a set of prospective financial statements include ______.
- a caveat that expected results might not be achieved - a summary of significant accounting policies - significant changes in financial position
Types of attestation engagements include ______.
- agreed-upon procedures - review - examination
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.
- allocation - accuracy
Levels of accountant service related to compliance are ______.
- an examination engagement - agreed-upon procedures
Assurance services ______.
- are similar to consulting services - are more customized than attestation services - consist of a large group of activities
Generally accepted government auditing standards define and describe three broad types of audits that may be performed: financial audits, ______ engagements and ______ audits.
- attestation - performance
Financial statement auditing and ______ services are both types of assurance services, but ______ services are not.
- attestation or attesting - consulting or consultation
Services that public accounting firms are prohibited from providing to audit clients under Sarbanes-Oxley include ______.
- bookkeeping and related services - appraisal or valuation services - management or human resource services - financial information system design and implementation
Special-purpose framework statements ______.
- can be audited, reviewed or compiled - have the same auditing standards as GAAP
Professional skepticism ______.
- causes auditors to search for errors and fraud with a material effect on financial statements - is important when making professional judgments - is required because of misdeeds perpetrated by just a few people
The most common attestation engagements are ______ and ______.
- compilations or compilation - reviews or review
Environmental conditions that increase user demand for relevant and reliable information include ______, remoteness, time sensitivity and ______.
- complexity - consequences or consequence
Financial statement frauds and potential ______ of ______ between information providers and users leads to a natural skepticism on the part of users.
- conflict or conflicts - interest
Assurance services include ______.
- cyber risk assessment - customer satisfaction surveys - internal audit outsourcing - regulatory compliance
Agreed-upon procedures reports ______.
- describe procedures users deemed necessary - identify the specified users - describe specific findings - state the work was not an audit
A preparation of financial statement engagement ______.
- does not require independence to be assessed - should include an engagement letter
Sarbanes-Oxley require that upper management certify the ______.
- effective of internal controls for financial reporting - correctness of financial statements
If auditors issued a disclaimer or adverse opinion on the complete set of financial statements, the firm may separately report only on an element, account, or item in the financial statements if the ______.
- element is not a major portion of the financial statements - element, account, or item is not related to equity or net income
Auditing ______.
- has a logical starting point - proceeds along established guidelines - has a logical conclusion
The obligation (owing) assertion ______.
- includes ensuring proper footnote disclosure - includes an estimate for product warranty
Outsourcing non core functions to service organizations absolves management of its responsibility for internal control over those functions.
False
Providing assurance is a form of attestation.
False
Responsibility for setting all audit standards to be followed on audit's of public companies rests with the ______.
PCAOB
The AICPA and the Canadian Institute of Chartered Accountants developed ______ to provide assurance to the consumer on the reliability of Internet websites.
WebTrust Services
A written letter of management representations is required in a compliance examination.
True
As part of presentation and disclosure, auditors must ensure that all proper disclosures have been made in accordance with the GAAP (or IFRS).
True
Understanding management assertions is a key component of planning an audit.
True
Agreed-upon procedures reports ______.
are restricted to the specified users who defined the work on the engagement
A review of unaudited financial statements includes ______.
both an engagement letter and written representations from management
The chance that customers will buy from competitors or product lines will become obsolete are examples of ______ risk.
business
The possibility that an entity will fail to meet its objectives is ______ ______.
business risk
If auditors expressed a disclaimer or adverse opinion on the complete set of financial statements, an unmodified opinion ______ be expressed on a single financial statement.
cannot
Analyzing repair and maintenance expenses to ensure they should not have been capitalized test for the assertion of proper ______.
classification
Rapid changes in the business world have led to the need for entry-level auditing professionals to have proficiency in ______.
data analytics and technology
Obtaining review evidence ______ require analytical procedures.
does
High-quality information to make educated financial decisions is demanded by ______.
investors and creditors
The existence of cash is always relevant, and valuation ______ a relevant assertion for the cash account
may not be
In order to perform review services, auditors ______ be independent.
must
Helping managers discharge their management responsibilities and improve profitability is the goal of ______ auditing.
operational
The study of business activities for the purpose of making recommendations about the efficient and effective use of resources, effective achievement of business objectives and compliance with company policies is ______ auditing.
operational
Provided prospective financial information that omits any of the required minimum items is known as a(n) ______ ______ that is only appropriate for specific users (limited use).
partial presentation
Examining accounts to ensure that amounts were appropriately expensed or capitalized is done to test the ______ assertion.
presentation and disclosure
Prospective financial information based on the occurrence of one or more hypothetical events that change the entity's existing business structure is a financial ______.
projection
The PCAOB argues that auditor independence would be impaired if the firm ______.
provides tax services to key executives
IRS agents and state and federal bank examiners are examples of ______ auditors.
regulatory
If there is a "reasonable possibility" that a material misstatement exists related to an assertion for the significant account being audited, the assertion is considered to be ______.
relevant
A service performed by accountants to obtain limited assurance that no material modifications should be made to the financial statements in order for them to be in conformity with the applicable reporting framework is a(n) ______.
review
Only a limited level of assurance is provided by an attestation ______.
review
When a CPA performs a(n) ______, limited-evidence gathering work is done, but the scope is narrower than in an audit.
review
When broker-dealers file an exemption report under Rule 17a-5, the report is subject to a(n) ______ engagement under AT2.
review
Obtaining evidence about estimated liabilities relates to the ______ assertion.
rights and obligations