Ch 0 - Intro to audit

Question 1

When a CPA (firm) provides assurance related to management assertions in the financial statements.

Answer 1

Financial Statement Audit

Question 2

T/F: A financial statement audit is a search for fraud, illegal activity, and any problems at all.

Answer 2

False; fraud –> forensic audit, illegal activity –> compliance audit, not every problem just material problems

Question 3

What do audits do?

Answer 3

Provide reasonable assurance about whether the financial statements are free of material misstatement, whether caused by error or fraud.

Question 4

T/F: You must be a CPA to sign a financial statement audit opinion.

Answer 4

True (for both public and private companies)

Question 5

T/F: A large publicly traded client may cost $10M to $20M for an annual audit.

Answer 5

True; require larger teams and longer audits

Question 6

How we allocate scarce investment resources to their most efficient uses

Answer 6

Capital markets

Question 7

T/F: Efficient allocation of investment resources is not critical to the living standard of society

Answer 7

False; IS critical because inefficient allocation of investment resources leads to fewer essential things and fewer superficial things

Question 8

_____________ are the main tool used to separate the “good” and “bad” companies.

Answer 8

Financial statements

Question 9

If investors can’t trust financial statement information, they will _________________.

Answer 9

Price protect, (not spend as much money on stocks) which weakens the capital market