Chapter 1: An Introduction to Assurance and Financial Statement Auditing

The final phase in the audit process is to _________.

evaluate the results and issue an audit report

True or false: Most audit opinions are qualified because it is common for auditors to find misstatements that need correction.

False; while it is common to find misstatements, most clients make the adjustments necessary to receive a clean opinion

Which of the following have given rise to an explosion in the demand for the assurance provided by auditors?

The development of the corporate form of business, and the expanding world economy

When business owners hire others to manage their business, the demand for auditing can be understood as the need for ______.

accountability

If a misstatement is considered so material that is pervasively affects the interpretation of the financial statements, the auditor will issue a(n) ________ opinion, indicating that the financial statements are not fairly stated and should not be relied upon.

adverse

Financial statement _________ are management's expressed or implied claims about information reflected in the financial statements.

assertions

Learning auditing essentially helps to understand how to gather and assess evidence as you can evaluate ______ (or claims) made by others.

assertions

Independent professional services that improve the quality of information, or its context, for decision makers are called __________ services.

assurance

These occur when a practitioner is engaged to issue a report on subject matter that is the responsibility of another party.

attest services

The underlying accounting data and any additional information available to the auditor, whether originating from the client or externally is the definition of _____ ________.

audit evidence

The end product of an auditor's work is the __________.

audit opinion

Which of the following is a type of attest service?

auditing

The systematic process approach to auditing involves _______.

auditor objectivity, searching for audit evidence, and evaluating audit evidence

Enhanced transparency of transactions, increased operating efficiency, and greater reliability of data and data trails are all results of the use of _______ technology.

blockchain

The use of decentralized, distributed digital ledgers that record economic transactions is allowed by __________ technology.

blockchain

Which of the following statements are true?

both; audits were in demand long before securities laws required them, and some forms of accounting and auditing existed in Greece as early as 500 BC

Predictive audit data analysis ________.

combines firm, industry, and market data to help auditors identify numbers that might be off

Auditors are generally hired by ______ stocks and bonds.

companies that are selling

CPA's add _______ to information produced and reported by management to outside parties.

credibility

True or false: Before accepting a new client, the auditor is required to conduct a background check on top management.

false, while an auditor may choose to do this it is not required. The auditor is required to confer with the predecessor auditor

Much of what auditors do revolves around collecting and evaluating evidence about management's ____________.

financial statement assertions

Auditing _____

focuses on learning the analytical and logical skills necessary to evaluate the relevance and reliability of financial information, is more conceptual in nature, and helps one to understand how to evaluate assertions

A very small difference that is unlikely to affect an investor's decisions in a significant manner is deemed to be _________.

immaterial

There is a(n) _______ relation between sample size and materiality, and a(n) ________ relation between sample size and desired level of assurance.

inverse, direct

The amount by which a set of financial statements could be misstated without affecting the judgment of a reasonable person is referred to as ______.

materiality

The auditor's assessments of ______ and ______ _______ influence the nature, timing, and extent of the audit evidence to be gathered.

materiality, audit risk

The conceptual and procedural details of a financial statement audit build on which three fundamental concepts?

materiality, evidence, and audit risk

Audit data analytics is using analysis, _________, and _________ to discover and analyze patterns, anomalies, and other information in data in the context of the audit.

modeling, visualization

CPA's have a traditional reputation of ______.

objectivity, independence, and competence

Most of the auditor's work in arriving at an opinion on the financial statements consists of ______ audit evidence relating to management's assertions.

obtaining and evaluating

Until the late 18th and early 19th centuries, most organizations were relatively small and were owned and operated as a sole proprietorship or ______.

partnership

Data analytics is rapidly redefining the concepts of discovering and analyzing ______ and ______ in data.

patterns, anomalies

Increasing use of audit data analytics __________ auditors' ability to ask the right questions and evaluate the answers yielded by the data.

places a greater premium on

For a company, the impacts of purchasing the assurance provided by an audit include _______.

providing assurance to thousands of potential investors, the ability to sell stocks and bonds at more favorable prices, and lower interest rates

Accounting professionals can perform various services that provide assurance about the ______ and ______ of information given by one party to another.

reliability, relevance

The increased use of data analytics in auditing ________.

requires the ability to query, manipulate, and interpret information, and streamlines some tedious audit tasks

In order to develop and support an audit opinion, the auditor must obtain an understanding of the client's ________.

risks, information systems, and business and industry

If an auditor assesses a larger level of materiality for an account, they will need a _______ sample than if materiality were a smaller amount.

smaller

The fact that there should be a well-planned and thorough approach for conducting the audit is implied by the phrase _______ __________.

systematic process

For an audit report to be unqualified ______.

the audit must be done in accordance with applicable standards, client financial statements must be free of material departures from GAAP, there must be no significant limitations imposed on the auditor's procedures, and the auditor must be independent

True or false: Assurance services can include almost any service provided by accounting professionals that involves capturing information, improving its quality, or enhancing its usefulness for decision makers.

true

True or false: The auditor's report, also known as the audit opinion, is the main product or output of the audit.

true, this is the final phase and the way the auditor communicates his or her findings

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 ___________.

unqualified

Professional standards require that public accounting firms establish policies and procedures for deciding _________.

whether to accept new clients, and if current clients should be retained