Accounting vs Auditing

Question 1

What is the auditor’s primary role?

Answer 1

To provide an impartial (independent) assessment of the reliability of management’s financial statements

Question 2

Define “generally accepted accounting principles (GAAP).”

Answer 2

The standards by which the quality of the financial statements is judged

Question 3

What is meant by generally accepted auditing standards (GAAS) under the clarified auditing standards?

Answer 3

The Statements on Auditing Standards issued by the AICPA’s Auditing Standards Board

Question 4

Who is primarily responsible for the fairness of an entity’s financial statements?

Answer 4

Management. The financial statements are the representation of management.

Question 5

List some benefits of an audit to a private company (also known as a nonissuer).

Answer 5

1. )More favorable cost of capital
2. )Insights into adequacy of internal controls
3. )Benchmark an entity’s performance with other similar entities

Question 6

In the U.S., who issues auditing standards applicable to audits of governmental entities?

Answer 6

U.S. Government Accountability Office (GAO)

Question 7

In the U.S., who issues auditing standards applicable to audits of public companies (also known as issuers)?

Answer 7

Public Company Accounting Oversight Board (PCAOB)

Question 8

In the U.S., who issues auditing standards applicable to audits of private companies and other entities known as nonissuers?

Answer 8

AICPA’s Auditing Standards Board