Chapter 1: The Demand for Audit & Other Assurance Services

Question 1

Accounting

Answer 1

The Recording, classifying, and summarizing of economic events in a logical manner for the purpose of providing financial information for decision making.

Question 2

Assurance Services

Answer 2

An independent professional service that improves the quality of information for for decision makers.

Question 3

Attestation Service

Answer 3

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

Question 4

Audit of Historical Financial Statements

Answer 4

A form of attestation service in which the auditor issues a written report stating whether the financial statements are material conformity with accounting standards.

Question 5

Audit Report

Answer 5

The communication of audit findings to user.

Question 6

Auditing

Answer 6

The accumulation and evaluation of evidence about information to determine and report on the degree of correspondence between the information and established criteria.

Question 7

Certified Public Accountant

Answer 7

A person who has met state regulatory requirements, including passing the uniform CPA examination, and thus has been certified; a CPA may have his primary responsibility as the performance of the audit function on historical statements.

Question 8

Compliance Audit

Answer 8

1) A review of an organization’s financial records performed to determine whether the organization is following specific procedures, rules, or regulations set by some higher authority; 2) An audit performed to determine whether an entity that receives financial assistance from the federal government has complied with specific laws and regulations.

Question 9

Evidence

Answer 9

Any information used by the auditor to determine whether the information being audited is stated in accordance with established criteria.

Question 10

Financial Statement Audit

Answer 10

An audit conducted to determine whether the overall financial statements of an entity are stated in accordance with specified criteria (usually U.S. or international accounting standards).

Question 11

Government Accountability Office Auditor

Answer 11

An auditor working for the U.S. Government Accountability Office (GAO); the GAO reports to and is responsible solely to congress.

Question 12

Independent Auditors

Answer 12

Certified public accountants or accounting firms that perform audits of commercial and noncommercial entities.

Question 13

Information Risk

Answer 13

The risk that information upon which a business decision made is inaccurate.

Question 14

Internal Auditors

Answer 14

Auditors employed by a company to audit for the company’s board of directors and management.

Question 15

Internal Control Over Financial Reporting

Answer 15

An engagement in which the auditor reports on the effectiveness of internal control over financial reporting; such reports are required for accelerated filer public companies under Section 404 of the Sarbanes-Oxley Act.

Question 16

Internal Revenue Agents

Answer 16

Auditors who work for the Internal Revenue Service (IRS) and conduct examinations of tax returns.

Question 17

Operational Audit

Answer 17

A review of any part of an organization’s operating procedures and methods for the purpose of evaluating efficiency and effectiveness.

Question 18

Review of Historical Financial Statements

Answer 18

A form of attestation in which a CPA firm issues a written report that provides less assurance than an audit as to whether the financial statements are in material conformity with accounting standards.

Question 19

Sarbanes-Oxley Act

Answer 19

A federal securities law passed in 2002 that provides for additional regulation of public companies and their auditors; the Act established the Public Company Accounting Oversight Board and also requires auditors of larger public companies to audit the effectiveness of internal control over financial reporting.