audit objectives and responsibilities

Question 1

Steps to develop audit objectives

Answer 1

1. Understand audit objectives and responsibilities
2. Divide financial statements into cycle
3. Know management assertions
4. Know general audit objectives
5. Know specific audit objectives

Question 2

Responsible for adopting sound accounting policies, maintaining adequate internal control, and making fair representations in the FS

Answer 2

Management

Question 3

Because they operate the business daily, a company’s management knows more about the company’s transactions and related assets, liabilities, and equity than the auditor

Answer 3

True

Question 4

Management’s representations are also called

Answer 4

Assertions

Question 5

What will the auditor do if management insists on FS disclosures that the auditor finds unacceptable

Answer 5

Either issue an adverse or qualified opinion/withdraw

Question 6

Requires the CEO and CFO of public companies to certify the quarterly and annual FS submitted to SEC

Answer 6

Sarbanes-Oxley Act

Question 7

SOX provides for criminal policies including significant monetary fines or imprisonment for up to 15 yrs

Answer 7

False. 20 yrs

Question 8

Overall objectives of the auditor in conducting an audit of FS are (2)

Answer 8

1. obtain reasonable assurance
2. report on the FS

Question 9

It would be extremely costly and probably impossible for auditors to have responsibility for finding all immaterial errors and fraud

Answer 9

True

Question 10

Measure of the level of certainty that the auditor has obtained at the completion of the audit

Answer 10

Assurance

Question 11

Auditor is not an insurer or guarantor of the correctness of the FS

Answer 11

True

Question 12

Audit that is conducted in accordance with auditing standards may fail to detect material misstatements

Answer 12

True

Question 13

The auditor’s best defense when material misstatements are not uncovered is to have conducted the audit in accordance with auditing standards

Answer 13

True

Question 14

Intentional misstatement

Answer 14

Fraud

Question 15

Unintentional misstatement

Answer 15

Error

Question 16

Often called defalcation or employee fraud

Answer 16

Misappropriation of assets

Question 17

Often called management fraud

Answer 17

Fraudulent financial reporting

Question 18

Fraud is often more difficult to detect because management or the employees perpetrating the fraud attempt to conceal the fraud

Answer 18

True

Question 19

Harms users by providing them incorrect FS information for their decision making

Answer 19

Fraudulent financial reporting

Question 20

Stockholders, creditors, and others are harmed because assets are no longer available to their rightful owners

Answer 20

Asset misappropriation

Question 21

Referred to as illegal acts

Answer 21

Noncompliance with laws and regulations

Question 22

The provisions of laws and regulations are unlikely to have a direct effect on the FS

Answer 22

True

Question 23

If the noncompliance has a material effect and has not been adequately reflected in FS

Answer 23

Auditor should express a qualified and adverse opinion

Question 24

If the auditor is precluded by management or TCWG from obtaining a sufficient appropriate evidence to evaluate regarding noncompliance

Answer 24

Auditor should express a qualified/disclaim opinion

Question 25

Consists of two primary components (1) questioning mind (2) critical assessment of the audit evidence

Answer 25

Professional skepticism

Question 26

Disposition to inquiry with some sense of doubt

Answer 26

Questioning mindset

Question 27

Withholding judgment until appropriate evidence is obtained

Answer 27

Suspension of judgment

Question 28

Desire to investigate beyond the obvious, with a desire to corroborate

Answer 28

Search for knowledge

Question 29

Recognition that people's motivations and perceptions can lead them to provide biased or misleading info

Answer 29

Interpersonal understanding

Question 30

Self-direction, moral independence, and conviction to decide for oneself

Answer 30

Autonomy

Question 31

Self-confidence to resist persuasion and to challenge assumptions

Answer 31

Self-esteem

Question 32

Professional skepticism is one component of professional judgment

Answer 32

True

Question 33

Elements of an effective judgment process (5)

Answer 33

Identify and define the issue Gather the facts and info and identify the relevant literature Perform the analysis and identify alternatives Make the decision Review and complete the documentation and rationale for the conclusion

Question 34

Tendency to put more weight on information that is consistent with inital beliefs

Answer 34

Confirmation Strategy to avoid (make the opposing case and consinder alternative explanations)

Question 35

Tendency to overestimate one's own abilities to perform tasks or to make accurate assessments

Answer 35

Overconfidence Strat to avoid (challenge opinions and experts)

Question 36

Tendency to make assessments by starting from an initial value and then adjusting insufficiently away from that initial value

Answer 36

Anchoring Strat to avoid (Solicit input from others)

Question 37

Tendency to consider information that is easily retrievable or easily accessible

Answer 37

Availability Strat to avoid (obtain and consider objective data)

Question 38

There are different ways of segmenting an audit. One approach is to treat every account balance on the statements as a separate segment

Answer 38

True

Question 39

Keeping closely related types of transactions and account balances in the same amount

Answer 39

Cycle approach

Question 40

Ties to the way the transactiond are recorded in journals and summarized in the general ledger and FS

Answer 40

Cycle approach

Question 41

Implied or expressed representations by management about classes of transactions and the related accountd and disclosures in FS

Answer 41

Management assertions

Question 42

5 categories of management assertions

Answer 42

1. existence/occurence 2. completeness 3. valuation or allocation 4. rights and obligation 5. presentation and disclosures

Question 43

Presentation and disclosures is treated as a single assertion

Answer 43

True

Question 44

Assertions about classes of transactions and events (6)

Answer 44

1. Occurence 2. Completeness 3. Classification 4. Accurate 5. Cutoff 6. Presentation

Question 45

Assertiond about account balances and related disclosure (6)

Answer 45

1. existence 2. completeness 3. accuracy, valuation and allocation 4. classification 5. rights and obligation 6. presentation

Question 46

Accounting records to source documents

Answer 46

Vouching (occurence-overstatement)

Question 47

Source document to accounting records

Answer 47

Tracing (completeness-understatement)

Question 48

Transaction related audit obj (7)

Answer 48

occurence completeness accuracy posting and summarization classification timing presentation

Question 49

Balance related audit obj (9)

Answer 49

existence completeness accuracy rights and obligations detail tie in realizable value classification cutoff presentation

Question 50

Have a meaningful bearing on whether the account is fairly stated and are used to assess the risk of material misstatement

Answer 50

Relevant assertions

Question 51

Reason for using audit objective, rather than the assertions is to provide a framework to help auditor accumulate sufficient appropriate evidence and decide the proper evidence to accumulate given the circumstances of the engagement

Answer 51

True

Question 52

At least one specific transaction related audit objective should be included for each general transaction related audit objective

Answer 52

True

Question 53

Such example of specific audit obj. class of transactions

Answer 53

sales, cash receipts, acquisitions of goods and services, and payroll

Question 54

Applied to account balances such as AR and inventory rather than classes of transactions such as sales transactions and purchases of inventory

Answer 54

Balance related audit objectives

Question 55

Balance related audit objectives are almost always applied to the ending balance in the balance sheet accounts

Answer 55

True

Question 56

Phases of the audit process (4)

Answer 56

Plan and design audit approach Perform tests of controls and substantive test of transactions Perform substantive analytical procedured and tests of details of balances Complete the audit and issue an audit report

Question 57

Critical component to planning and designing an audit approach

Answer 57

Risk assessment procedures

Question 58

Evaluation of financial information through analysis of plausible relationships among financial and nonfinancial data

Answer 58

Analytical procedures

Question 59

When analytical procedures are used as evidence to provide assurance about an account balance

Answer 59

Substantive analytical procedures

Question 60

Specific procedures intended to test for monetary misstatements in the balances in the FS

Answer 60

Test of details of balances

Question 61

audit procedures performed to obtain an understanding of the entity and its environment, including the entity's internal control to identify and assess the risks of material misstatements

Answer 61

Risk assessment procedures

Question 62

An analytical procedure in which the auditor develops an expectation of recorded amount or ratios

Answer 62

Substantive analytical procedure

Question 63

audit procedures testing for monetary misstatements to determine whether the seven transaction related audit objective have been satisfied

Answer 63

Substantive test of transactions

Question 64

audit procedures to test the effectiveness of controls in support of a reduced assessed control risk

Answer 64

test of controls