Chapter 1 Flashcards
Define what an attestation service does
Provides assurance towards reliability
Attestation services are ____ services
Assurance services
What is a compliance audit?
Audit in which verifiable data is checked against recognized criteria/standards for compliance.
IRS of income tax return
FDIC audit of banks
Federal government audits of departments and nonprofits
CPA’s must be independent for any ____ (assurance/nonassurance) service
Assurance
List out some assurance services
- Audits of financial Statements
- Examinations of Internal Control
- Trust Services (WebTrust)
List out some nonassurance services
Bookkeeping
Fraud Investigations
Information Technology Consultiny
What is an operational audit?
A specific unit of an organization studied for its performance
Are internal auditors independent?
No, even though they are employed by companies
Which entity sets standards of financial accounting for state and local government entities?
GASB
Describe a general partnership
Entity is same as multiple owners (same as proprietorship but multiple partners)
Which entity is considered the Comptrollers of Congress?
GAO - Government Accountability Office
Which body Sets GAAP for entities other than federal, state, and local governments?
FASB
Describe a proprietorship
Same entity as owner (no indpencdence or limited liability)
The ASB’s Statements on Auditing Standards (SASs) apply to (public/nonpublic) _______ companies
nonpublic. PCAOB is for public
Which entity sets accounting standards for the federal government agencies?
FASAB
What is a professional corporation?
Service firm with shareholder owners, limited liability by state
What is a limited liability Coompany?
Structured like a partnership, but limited liability like a general corporation (considered best of both worlds)
Which type of corporation is typically prohibited for CPA firms?
General corporation
Explain a limited liability partnership.
Structured like a general partnership, limited liability less than a general corporation: people are personally liable for their obligations, own acts, negligent acts of other partners, and acts under supervision
Which type of audit and what type of auditor? - Evaluate the policies and procedures of the Food and Drug Administration in terms of bringing new drugs to market
Operational - Government
Who is considered the head of Government Auditors?
Auditor General
Which type of audit and what type of auditor? - Determine the fair presentation of Ajax Chemical’s balance sheet, income statement, and statement of cash flows
Financial Statement - External
Which type of audit and what type of auditor? - Investigate the possibility of payroll fraud in a labor union pension fund.
Compliance/Forensic - Government, external, or forensic
Are external auditors required to be public accountants?
Yes
Government auditors typically perform which types of audits?
Compliance, operational, and financia;
Which type of audit and what type of auditor? -
Examine the financial records of a division of a corporation to determine if any accounting irregularities have occurred.
Forensic - Internal/External/Forensic
Which type of audit and what type of auditor? -
Evaluate the feasibility of forecasted rental income for a planned low income public housing project
Operational - Government, external, or Internal
Which type of audit and what type of auditor? - Evaluate a company’s computer services department in terms of the efficient and effective use of corporate resources.
operational - Internal or External
Which type of audit and what type of auditor? -
Audit the partnership tax return of a real estate development company.
Compliance - Government
Which group was created to oversee and discipline CPAs and public accounting firms that audit public companies?
PCAOB
SASs typically adress
Generally accepted auditing standards
What kind of audits do internal auditors typically do?
Operational Audits
What is the main goal of the SEC in regards to the public?
Protection of investors
All attest functions must be ___ (dependent/independent)
Independent
A registration statement containing audited financial statements generally must be filed with the SEC ____ (before/after) a new issue of securities is offered for sale to the public.
Before
The Sarbanes-Oxley Act of 2002 restricted the types of consulting services that may be performed by CPA firms for public audit clients. True or False?
True
An independent audit on an annual basis is required by the AICPA for all corporations. True or False?
False
The internal auditing staff of a large corporation usually reports to a committee of the board of directors, to a member of the top management group, or both. True or False?
True
As compared to smaller CPA firms, large CPA firms generally spend a _____ (lesser/greater) percentage of the time performing audits.True or False?
Greater
Since corporations have limited liability, CPA firms must be organized as sole proprietorships or partnerships. True or False
False. Many are LLPs or LLCs
The Public Company Accounting Oversight Board was established to issue accounting standards for publicly traded companies. True or False?
False. Though for public companies, the PCAOB
Some of the following criteria are essential for satisfactory performance in several professions. Which one is unique to audit work by CPAs?
- Due Prof. Care
- Independence
- Familiarity with a complex body of technological knoweledge
- general competence
- independence
Define business risk
Risk a company will not be able to meet its commitments
Managers are often assigned to supervise several concurrent audit engagements. True or false
True
An effect of the Sarbanes-Oxley Act of 2002 was to:
Reduce the circumstances in which one may file securities with the SEC. require periodic peer reviews of large CPA firms performed by the General Accounting Office. eliminate SEC involvement with sales of securities. reduce the accounting profession’s level of self regulation.
reduce the accounting profession’s level of self regulation.
Which of the following is not an example of an assurance service?
Auditt of financial statements. Preparation of a tax return. Attesting to the reliability of a financial forecast. Review of internal control over operations
Preparation of a tax return
Associations of CPA firms provide their members with many of the benefits of having their own professional development departments. True or False?
True
Which of the following is an area in which the Public Company Accounting Oversight Board is not empowered to establish or adopt standards?
- Accounting
- Auditing
- Ethics
- Quality Control
Accounting
Independent auditors of the year 1900 differed from the auditors of today in that auditors in 1900 were more concerned with:
- validity of income statement
- minimizing income taxes
- internal control
- accuracy of balance sheet
accuracy of the balance sheet
Are senior auditors required to sign the audit report?
No
Regulation S-X, is another word for this regulation adopted by the SEC to improve the quality of financial statements filed with it
Sarbanes-Oxley
