Chapter 1-Part 2

Question 1

valuation and allocation assertion

Answer 1

(accuracy or valuation)

Question 2

R: Management must assert that they have ownership rights for all amounts reported as assets on co’s b/s

O: Amounts reported as liabilities represent co’s own obligation

i.e., evidence must be obtained that assets are owned and that liabilities are owed by the co being audited

Ownership: includes assets for which a co may not hold title

Owing: includes liabilities a co may not yet be obligated to pay

Answer 2

rights and obligations assertion (ownership and owing)

Question 3

P: transactions/events have been presented in accordance with GAAP

D: relevant information disclosed to children in footnotes

1. Disclosures must be relevant , reliable, understandable and transparent to children
2. transactions must be classified in correct acct
3. to be useful to children information must be understandable

U: quality of info enables children to perceive its significance

Answer 3

presentation and disclosure assertion (classification and understandability)

Question 4

*an auditor’s tendency not to believe management’s assertions without sufficient corroboration.

Answer 4

professional skepticism

Question 5

*A potential conflict of interest always exists between the auditor and the client.

*Management wants to portray the company and its operations in the best possible light.

*Auditors want to portray the company and its operations fairly.

Answer 5

Why is is important to have an attitude of skepticism?

Question 6

*Ask questions, get answers, then verify the answers.

*What do I need to know? How well do I know it? Does it make sense?

*When do you stop?

Answer 6

What elements are involved in professional skepticism?

Question 7

*Financial (External Auditors/CPAs)

*Operational (Internal Auditors/CIAs)

*Compliance (Governmental Auditors)

*Forensic (Fraud Auditors/CFEs)

Answer 7

Different types of audits/auditors

Question 8

*(Internal Auditors/CIAs) – efficiency of operations

*Improve operational economy

*Improve operational efficiency

Answer 8

Operational Auditors

Question 8

*(External Auditors/CPAs)- not employees of the company

*Ensure that financial statements are accurate.

Answer 8

Financial Auditors

Question 9

*(Governmental Auditors)

*Ensure compliance with company and/or governmental rules and regulations

Answer 9

Compliance Auditors

Question 10

*(Fraud Auditors/CFEs)

*Most audits are a combination of financial, operational, and compliance audits.

Answer 10

Forensic Auditors