ch 1 homework review

Question 1

financial statement audit

Answer 1

provides users with an opinion by auditor on whether financial statements are presented fairly in accordance with an applicable financial reporting framework; enhances degree of confidence; public companies required to have one by the government but private companies are not (can be requested)

Question 2

compliance audit

Answer 2

audit to determine whether entity conforms with regulation rules and processed; gathers evidence to determine whether the person has followed rules, policies, procedure, laws and regulations with which they must conform

Question 3

operational audit

Answer 3

assessment of economy, efficiency and effectiveness of organizations activities

Question 4

economy:

Answer 4

costs of inputs (wages and materials)

Question 5

efficiency:

Answer 5

relationship between inputs and outputs of use of the minimum amount of input to achieve given output

Question 6

effectiveness:

Answer 6

achievements of certain goals or production of a certain net income of outputs

Question 7

reasonable assurance

Answer 7

high but not absolute level of assurance about whether financial statements as a whole are free of material misstatement (whether from fraud or error)

Question 8

audit risk:

Answer 8

risk that an auditor expresses an inappropriate audit opinion when financial statements are materially misstated

Question 9

auditor opinion:

Answer 9

judgement about matters that are subjective

Question 10

attestation service expresses _____________

Answer 10

limited assurance that not material modifications need to be made to financial statements

Question 11

in an attestation service there is _______ provided on if financial statements are presented fairly

Answer 11

no opinion

Question 12

reasons to request a financial statement audit:

Answer 12

1. remoteness
2. complexity
3. completeness
4. reliability

Question 13

remoteness

Answer 13

most financial statements users don’t have access to the company under review which makes it difficult to determine whether the info contained in the financial statements is a fair presentation of the entity and its activities in the relative period

Question 14

complexity

Answer 14

financial statements are complex, the amounts are often affected by significant estimates and the disclosures often require significant knowledge to assess the reasonableness of complex accounting and disclosure choices being made by the company

Question 15

competing incentives

Answer 15

company managers have an incentive to disclose things in a favorable light so users may find it difficult to see when management is presenting biased information

Question 15

reliability

Answer 15

user are concerned with the reliability of the information contained in the financial statements