Chapter 1 Notes

Question 1

auditing

Answer 1

the accumulation and evaluation of evidence about info to determine and report on the degree of correspondence between the info and established critieria

Question 2

evidence

Answer 2

any info used by the auditor to determine whether the info being audited is stated in accordance with the established criteria

Question 3

independent auditors

Answer 3

auditors reporting on company financial statements

Question 4

audit report

Answer 4

communicates the auditors findings to users

Question 5

accounting

Answer 5

the recording, classifying, and summarizing of economic events in a logical manner for the purpose of providing financial info for decision making

Question 6

interest rate determination factors

Answer 6

risk free interest rate - opportunity cost
business risk for the customer - likelihood of repayment
information risk

Question 7

information risk

Answer 7

the possibility that the info upon which the business risk decision was made was accurate

Question 8

reasons for unreliable info

Answer 8

remoteness of info
biases and motives of the provider
voluminous data
complex exchange transactions

Question 9

ways to reduce info risk

Answer 9

user verifies info
user shares info risk with management
audited financial statements are provided

Question 10

assurance service

Answer 10

an independent professional service that improves the quality of info for decision makers

Question 11

attestation service

Answer 11

a type of assurance service in which the CPA firm issues a report about a subject matter or assertion that is made by another party

Question 12

Five Categories of Attestation Services

Answer 12

1. Audit of historical financial statements
2. audit of internal control over financial reporting
3. Review of historical financial statements
4. Attestation services on info tech
5. Other attestation services that may be applied to a broad range of subject matter

Question 13

audit of historical financial statements

Answer 13

management asserts that the statements are fairly stated in accordance with applicable U.S. or international accounting standards

Question 14

audit of internal control over financial reporting

Answer 14

management asserts that internal controls have been developed and implemented following well established criteria

Question 15

review of historical financial statements

Answer 15

management asserts that the statements are fairly stated in accordance with accounting standards, the same as for audits

Question 16

attestation services on information technology

Answer 16

management makes various assertions about the reliability and security of electronic info

Question 17

other attestation services

Answer 17

any other attestation services not previously stated

Question 18

non assurance services

Answer 18

other management consulting, accounting and book keeping, tax services

Question 19

types of cpa audits

Answer 19

operational audit
compliance audit
financial statement audit

Question 20

operational audit

Answer 20

evaluate the efficiency and effectiveness of any part of an organization’s operating procedures and methods

Question 21

compliance audit

Answer 21

conducted to determine whether the auditee is following specific procedures, rules, or regulations set by some higher authority
ex: wage rate laws, loan covenants, etc.

Question 22

financial statement audit

Answer 22

conducted to determine whether the financial statements(info being verified) are stated in accordance with specified criteria

Question 23

types of auditors

Answer 23

certified public accounting firms, government accountability office auditors, internal revenue agents, and internal auditors

Question 24

certified public accounting firms

Answer 24

responsible for auditing the published historical financial statements of all publicly traded companies, other large companies, and smaller companies

Question 25

government accountability office auditor

Answer 25

an auditor working for the US Government Accountability Office, performs audit function for Congress, and other functions

Question 26

internal revenue agents

Answer 26

auditors who perform compliance audits for the IRS

Question 27

internal auditors

Answer 27

employed by all types of organizations to audit for management

Question 28

certified public accountant

Answer 28

must have certain
educational requirements
taken the CPA and passed
experience