Chapter 1: Intro and Overview

Question 1

How are auditing, attestation, and assurance the same?

Answer 1

All involve an independent accounting firm taking information prepared by someone else, comparing that information to established criteria, and providing a report of the results.

Question 2

What is the common purpose of auditing, attestation, and assurance?

Answer 2

To add credibility/ integrity to information so it is more decision useful

Question 3

ICFR

Answer 3

Internal controls over financial reporting

Question 4

Primary types of audit sevuces

Answer 4

Audit of financial statements

Audit of internal controls over financial reporting

Question 5

Audit Services

Answer 5

Services by an independent CPA that provide financial statement user with 1) an opinion on whether the financial statements are presented fairly, in all material aspects, in accordance with an applicable financial reporting framework and, in some cases, 2) an opinion on the effectiveness of ICFR which enhance the degree of confidence that the intended users can place on financial statements

Question 6

Purpose of audit of financial statements

Answer 6

To provide financial statement users with an opinion by the auditor on whether the financial statements are presented fairly in accordance with an applicable financial reporting framework

Question 7

Purpose of an audit of internal controls over financial reporting

Answer 7

To provide financial statement users with an opinion by the auditor of the design and operating effectiveness of ICFR.

Question 8

Attestation services

Answer 8

Services performed when an independent practitioner, or CPA, is engaged to issue a report on subject matter that is the responsibility of another party

Question 9

Assurance services

Answer 9

Independent professional services that improve the quality of information, or its context, for decision makers

Question 10

Independence

Answer 10

Not involved with creation of information and objective in the evaluation thereof

Question 11

Quality of information

Answer 11

Relevance and reliability

Question 12

Who are the intended users of assurance services?

Answer 12

Any group that will be using the financial statements for decision making purposes (investors, creditors)

Question 13

Integrated audit

Answer 13

An audir that combines the financial statement audit with an audit of the effectiveness of ICFR

Question 14

Causes of audit limitations

Answer 14

• the nature of financial reporting (use of judgement and subjectivity in preparation)]
• the nature of audit procedures (reliance on evidence from client, sampling techniques, materiality)
• the need for the audit to be conducted within a reasonable period of time at a reasonable cost

Question 15

Materiality

Answer 15

The ability of information to influence decisions that users make on the basis of the financial information of a specification reporting entity

Question 16

Compliance audit

Answer 16

An audit to determine whether the entity has conformed with regulations, rules, or processes

Question 17

Operational (performance) audits

Answer 17

an assessment of the economy, efficiency, and effectiveness of an organization’s operations

Question 18

internal audits

Answer 18

a function within an entity which generally evaluates and improves risk management, internal control procedures, and elements of th governance process

Question 19

those charged with governance

Answer 19

persons with responsibility for overseeing the strategic direction of the entity and the obligations related to the accountability of the entity

Question 20

Why might financial statement users demand an audit?

Answer 20

• lack of immediate access to the company under review
• complexity of transactions requires specialized accounting and legal knowledge statement users do not possess
• managing potentially competing incentives of company management and users
• confirmation of reliability