Chapter 1 - Homework

Question 1

Which of the following would be considered an assurance engagement?

Answer 1

• Giving an opinion on a prize promoter’s claims about the amount of sweepstakes prizes awarded in the past.
• Giving an opinion on the conformity of the financial statements of a university with generally accepted accounting principles.
• Giving an opinion on the fair presentation of a newspaper’s circulation data.
• Giving assurance about the average drive length achieved by golfers with a client’s golf balls.

Question 2

In an attestation engagement, a CPA practitioner is engaged to:

Answer 2

prepare a written report containing a conclusion about the reliability of a management assertion.

Question 3

Bankers who are processing loan applications from companies seeking large loans will probably ask for financial statements audited by an independent CPA because:

Answer 3

they generally see a potential conflict of interest between company managers who want to get loans and the bank’s needs for reliable financial statements.

Question 4

Identify the PCAOB Assertion: Management asserts that Accounts Receivable on the balance sheet represent valid amounts owed to the company that were likely provided in exchange for goods or services from the company.

Answer 4

Existence or Occurrence

Question 5

Identify the PCAOB Assertion: Management asserts that all amounts that should be recorded and included in the financial statements as accounts receivable actually have been recorded.

Answer 5

Completeness

Question 6

Identify the PCAOB Assertion: Management asserts that Accounts Receivable are stated at net realizable value.

Answer 6

Valuation or Allocation

Question 7

Identify the PCAOB Assertion: Management asserts that the Accounts Receivable on the balance sheet really are owned by the company. As a result, they have not factored (i.e., sold) any of the balances that are listed on the balance sheet.

Answer 7

Rights and Obligations

Question 8

Identify the PCAOB Assertion: Management asserts that the presentation of accounts receivable and the related allowance for doubtful accounts have been presented and are disclosed in accordance with GAAP.

Answer 8

Presentation and Disclosure

Question 9

What requirements are usually necessary to become licensed as a certified public accountant?

Answer 9

• Successful completion of the Uniform CPA Examination.
• Experience in the accounting field.
• Education.

Question 10

The organization primarily responsible for ensuring that public officials are using public funds efficiently, economically, and effectively is the:

Answer 10

Government Accountability Office (GAO).

Question 11

Jones, CPA, is planning the audit of Rhonda’s Company. Rhonda verbally asserts to Jones that all expenses for the year have been recorded in the accounts. Rhonda’s representation in this regard:

Answer 11

is not considered a sufficient basis for Jones to conclude that all expenses have been recorded. Corroboration with documentary evidence is required for the assertions to be considered as sufficient.

Question 12

The Sarbanes–Oxley Act of 2002 generally prohibits public accounting firms from:

Answer 12

• acting in a managerial decision-making role for an audit client.
• auditing the firm’s own work on an audit client.
• providing tax consulting to an audit client without audit committee approval.