ACCT260 - Audit Exam 1

Question 1

What are the three types of auditors

Answer 1

Internal, governmental, internal revenue service agents

Question 2

What is the structure of internal auditors

Answer 2

Mainly operational audits, employed by large organizations, government and non-profits

Question 3

What is the structure of GAO auditors

Answer 3

Created by congress, audit governmental agencies to determine spending programs

Question 4

What is the purpose of Internal revenue agents

Answer 4

Responsible for enforcement of federal tax laws, conduct compliance audits of income tax returns

Question 5

What is auditing?

Answer 5

Systematic process of obtaining evidence by an independent party to verify management assertions

Question 6

What type of assurance do auditors provide

Answer 6

Reasonable assurance - low level of risk remaining that the auditors express an opinion that the financial statements are properly stated

Question 7

What is the audit formula?

Answer 7

AR = IR * CR * DR

Question 8

What are assertions?

Answer 8

A representation or declaration made by the responsible party, typically management of the entity

Question 9

What is attestation?

Answer 9

means to provide assurance as to its reliability

Question 10

Which paragraphs relate to GAAP GAAS

Answer 10

Paragraph 1 regarding management responsibility Paragragh 2 related to auditor’s responsibility

Question 11

What is the PCAOB?

Answer 11

Public Company Accounting Oversight Board - responsible for regulating CPAs and Accounting firms. Established by Congress in 2002. enforced by SEC. 5 member board

Question 12

What is it important to communicate to predecessor auditor?

Answer 12

Should happen with first year audit to inform new auditor of any pertinent information

Question 13

What is in the engagement letter?

Answer 13

name of entity, management responsibility, auditor responsibilities

Question 14

What are analytical procedures and when are they used?

Answer 14

Comparison of relationships among financial and non financial data. Used to provide evidence regarding one or more financial statement assertions

Question 15

What are the types of audits?

Answer 15

Financial, Compliance and Operational

Question 16

What does a financial audit entail?

Answer 16

Audit of the financial accounting information of an entity in accordance with GAAP

Question 17

What is a compliance audit?

Answer 17

An audit dependent on the verifiable data recognized standards. ex. IRS tax return audit

Question 18

What is an operational audit?

Answer 18

An audit of a specific unit of organization for measuring its performance

Question 19

What is an integrated audit?

Answer 19

An audit providing assurance on financial statements and the effectiveness of internal control

Question 20

Which two parts are the audit program divided into?

Answer 20

Test of controls and substantive test (financial statements)

Question 21

How is the audit program divided?

Answer 21

Plan the audit, obtain the understanding of the client and its environment, assess the risk of misstatement and design further audit procedures, perform further audit procedures, complete the audit and form an opinion

Question 22

What are related party transactions?

Answer 22

A transaction between the party and company other than normal compensation arrangements, expense allowances.

Question 23

Define a lead schedule

Answer 23

A working paper with columunar heading similar to those in a working trial balance set up to combine similar ledger accounts

Question 24

What is materiality?

Answer 24

means some matters are important to fair presentation of financial statement and others are not

Question 25

Five components of internal control?

Answer 25

plan the engagement, use a top-down approach to identify controls to test, test and evaluate design effectiveness, form an opinion on the effectiveness of internal control