Chapter 2 Flashcards
Professional Standards
For each of the following, identify whether it is most appropriately associated with independence in fact (Fact), independence in appearance (Appearance), both (B), or neither (N).
a. Relates to the auditors’ “state of mind.”
Fact
For each of the following, identify whether it is most appropriately associated with independence in fact (Fact), independence in appearance (Appearance), both (B), or neither (N).
b. Relates to others’ perceptions of the auditors’ independence.
Appearance
For each of the following, identify whether it is most appropriately associated with independence in fact (Fact), independence in appearance (Appearance), both (B), or neither (N).
c. Reflects an unbiased and impartial perspective with respect to the financial statement audit.
Fact
For each of the following, identify whether it is most appropriately associated with independence in fact (Fact), independence in appearance (Appearance), both (B), or neither (N).
d. The auditors’ firm provides extensive consulting services to the client; these services provide revenues to the firm that exceed revenues received from the audit engagement.
Appearance
For each of the following, identify whether it is most appropriately associated with independence in fact (Fact), independence in appearance (Appearance), both (B), or neither (N).
e. The spouse of the partner in charge of the audit engagement occupies an executive-level position within the client.
Both
For each of the following, identify whether it is most appropriately associated with independence in fact (Fact), independence in appearance (Appearance), both (B), or neither (N).
f. A distant relative of a partner within the firm occupies an entry-level position within the client of the firm. (The audit is conducted by another office of the firm with which the partner has infrequent contact).
Neither
For each of the following, identify whether it is most appropriately associated with independence in fact (Fact), independence in appearance (Appearance), both (B), or neither (N).
g. A staff member within the firm owns shares of stock of one of that firm’s clients. (She is not a member of the engagement team serving that client.)
Neither
Affected by the information the evidence provides to the audit team
Appropriateness - Relevance
b. Refers to the quantity of evidence, which is the number of transactions or components of an account balance of class of transactions examined by the audit team.
Sufficiency
c. Refers to the extent to which the audit team can trust the evidence
Appropriateness - Reliability
Hierarchy of the source of evidence from the most reliable (1) to least reliable (3).
- Evidence obtained by the auditor
- Evidence obtained from external sources
- Evidence obtained from internal sources.
Rank the following components of the standard unqualified opinion for an issuer in order
- Title
- Addressee
- Opinion
- Basis for Opinion
- Critical Audit Matters
- Signature
___ is (are) responsible for the financial statements
Management
The auditor’s report is the ___ of an audit
end product
An unmodified opinion indicates that the financial statements are presented ______
Fairly
An audit report indicates that the audit evidence we have obtained is __________ to provide a basis for the opinion.
sufficient
Stages of an audit in order:
- Obtain or Retain Engagement
- Engagement Planning
- Risk Assessment
- Audit Evidence
- Reporting
The Public Company Accounting Oversight Board was established by
The Sarbanes–Oxley Act of 2002
An important role of the Public Company Accounting Oversight Board is to oversee the
regulation of firms that audit issuers
Generally accepted auditing standards are
standards that guide the conduct of an audit examination
Auditors try to achieve independence in appearance in order to:
maintain public confidence in the profession
An independent auditor must have which of the following?
Technical training that is adequate to meet the requirements of a professional
During which stages of an audit examination are auditors required to exhibit the appropriate use of professional judgment?
Gathering Evidence - Yes
Drawing Conclusions - Yes
Which of the following would normally be considered earliest in the audit examination?
Determination of materiality levels for use during the audit
The preparation of an audit plan prior to the beginning of field work is appropriately considered documentation of
planning
What type of evidence would provide the highest level of assurance in an attestation engagement?
Evidence obtained from independent sources
Audit evidence is usually considered sufficient when
there is enough quantity to afford a reasonable basis for an opinion on financial statements
The standard auditors’ report refers to standards of the PCAOB and GAAP in which section(s)?
Standards of the PCAOB: Opinion on the Financial Statements and Basis for Opinion; GAAP: Opinion on the Financial Statements
Which reporting options do auditors have if the client’s financial statements are not presented according to the applicable financial framework (e.g., GAAP, IFRS)?
Qualified opinion or adverse opinion
Which of the following situations would result in the issuance of a disclaimer of opinion?
The auditor is discovered to own a financial interest in the entity
An audit of the financial statements of Camden Corporation is being conducted by external auditors. The external auditors are expected to:
give an opinion on the fair presentation of Camden’s financial statements in conformity with the applicable financial reporting framework (e.g., GAAP, IFRS)
A periodic review of an audit firm’s system of quality control by the PCAOB is referred to as a(n):
Inspection
