Chapter 2

Question 1

A systematic process of objectively obtaining and evaluating evidence regarding assertions about economic activities and events to ascertain the degree of correspondence between these assertions and established criteria and communicating the results to interested users (AAA).”

Answer 1

Auditing

Question 2

2 Processes in Auditing

Answer 2

Investigative process
Reporting process

Question 3

involves the systematic gathering and evaluation of evidence as a basis for determining whether assertions or representations made by a responsible person in a company’s financial statements, correspond with the established criteria, such as generally accepted accounting principles (GAAP).

Answer 3

Investigative process

Question 4

involves communicating an evaluation or opinion in an audit report to interested users.

Answer 4

Reporting process

Question 5

Auditing is not a branch of accounting
T or F

Answer 5

T

Question 6

Concerned with the determination of whether the recorded accounting information for the entity properly reflects the economic events that occurred during the accounting period.

Answer 6

Auditing

Question 7

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

Answer 7

Accounting

Question 8

Refers to the gathering of evidence on the assertions embodied in the financial statements of an entity and using the evidence to determine whether the assertions adhere to generally accepted accounting principles (GAAP) or another comprehensive authoritative financial reporting framework.

Answer 8

Financial Statement Audits

Question 9

Involve “a systematic review of an organization’s activities in relation to specified objectives for the purposes of assessing performance, identifying opportunities for improvement, and developing recommendations for improvement or further action.

Answer 9

Operational Audits

Question 10

Used to determine whether a person or entity has adhered to laws and regulations. Results of compliance audits are generally reported to a specific user within the organization.

Answer 10

Compliance Audits

Question 11

Audits performed by CPAs who are independent of the organizations whose assertions are being audited. These CPAs are also known as independent auditors or external auditors.

Answer 11

External Audits

Question 12

“an independent appraisal function established within an organization to examine and evaluate its activities as a service to the organization”.
Often reports to the audit committee of the board of directors and also to the president or another high executive.

Answer 12

Internal Audits

Question 13

Involves the determination of whether government funds are being handled properly and in compliance with existing laws and whether the government programs of a particular agency are being conducted efficiently and economically.

Answer 13

Government Audits

Question 14

Risk that information is misstated or misleading.
Factors:
Remoteness of information users from information provider.
Potential bias and motives of information provider.
Voluminous data
Complex exchange transactions

Answer 14

Information Risk

Question 14

Allow users to verify information.
User shares information risk with management.
Have the financial statements audited

Answer 14

Reducing Information Risk

Question 15

3 divisions:
of government audits

Answer 15

Compliance audit – accordance with laws & regulations
Financial audit – audit of accounting & financial system and controls
Performance audit – financial and operational performance of an organization, program, activity or function

Question 16

Economy & efficiency audit – management audit
Effectiveness audit – program results audit (read)

Answer 16

read

Question 17

Means through which the auditor provides reasonable assurance that the financial statements are fairly stated
Uniform in format and suitably titled to avoid confusion regarding the level of assurance being provided and to differentiate it from other reports which client management might include with the financial statements.

Answer 17

The Audit Report

Question 17

The fundamental nature and characteristics of financial reporting and business processes
The nature of audit evidence and procedures; and
The need for the audit to be conducted within a reasonable period of time and at a reasonable cost.

Answer 17

Limitations of an Audit

Question 18

The future viability of the entity.
The efficiency or effectiveness with which management has conducted the affairs of the entity.
The extent of compliance with all laws and regulations that may be applicable to the entity. (read)

Answer 18

An auditor does not express an opinion on the following:

Question 19

For what reason an independent auditor gather evidence

Answer 19

To form an opinion on the financial statements

Question 20

In goverrnment auditing the 3 elements of expanded scope auditing are

Answer 20

Financial and compliance
economy and efficiency
program results

Question 21

Audit which serves the needs of management

Answer 21

Internal auditing

Question 22

a measure of management performance in meeting organizational goals

Answer 22

operational audit

Question 23

the auditor communicates the results of his/her work through the medium of the

Answer 23

audit report

Question 24

to operate effectively, an internal auditor must be independent of:

Answer 24

the line functions of the organization

Question 25

the market for auditing service is driven by

Answer 25

a demand by external users of financial statements

Question 26

most commonly used to reduce information risk

Answer 26

have financial statements audited

Question 27

an independent auditor may participate in preparing financial statements, including accompanying notes\
t/f

Answer 27

F (its the responsibility of the management

Question 28

type of audit which to determine if the financial statements of the entity is fairly stated based on GAAP

Answer 28

financial statements audit

Question 29

Risk that information provided to users may be materially misstated

Answer 29

Information risk

Question 30

who are the major beneficiaries of internal audit

Answer 30

management

Question 31

an independent auditor not need to be a CPA

Answer 31

needs to be CPA to be an auditor

Question 32

In auditing, do you need the data should be externally-generated?

Answer 32

Not necessarily, but the data should be verifiable

Question 33

Does audit provide assurance in fraud?

Answer 33

no

Question 34

determination of whether government funds are being handled properly and in compliance with existing laws

Answer 34

government audits