Chapter 2 Homework Flashcards

1
Q

Which of the following would be considered a nonattest assurance service engagement?

I. Expressing an opinion about the reliability of an entity’s financial statements
II. Reporting that a company’s sustainability metrics are complete and accurate

A) I only
B) Neither I nor II
C) II only
D) Both I and II

A

Neither I nor II

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2
Q

Which of the following best places the events of the last decade in proper sequence?

A) Increased consulting services to auditees, Sarbanes-Oxley Act, Enron and other scandals, prohibition of most consulting work for auditees, establishment of PCAOB.
B) Enron and other scandals, Sarbanes-Oxley Act, increased consulting services to auditees, prohibition of most consulting work for auditees, establishment of PCAOB.
C) Sarbanes-Oxley Act, increased consulting services to auditees, Enron and other scandals, prohibition of most consulting work for auditees, establishment of PCAOB.
D) Increased consulting services to auditees, Enron and other scandals, Sarbanes-Oxley Act, prohibition of most consulting work for auditees, establishment of PCAOB.

A

Increased consulting services to auditees, Enron and other scandals, Sarbanes-Oxley Act, prohibition of most consulting work for auditees, establishment of PCAOB.

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3
Q

Financial Statement Auditors

A

Independ-audit financial statements.

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4
Q

Internal Auditors

A

Audit the company they work for.

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5
Q

Governmental Auditors

A

Report to Congress or Municipal Governments

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6
Q

IRS Auditors

A

Enforce federal tax laws only.

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7
Q

Most large corporations typically have a large group of ______.

A

Internal Auditors

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8
Q

Headed by the Auditor General, the work of ______ includes compliance, operational, and financial audits.

A

Governmental Auditors

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9
Q

______ perform compliance audits of income tax returns of individuals and corporations to determine that income has been computed and taxes paid as required.

A

IRS Auditors

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10
Q

______ are the only auditors that work for the company that they are auditing.

A

Internal Auditors

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11
Q

______ are required to be public accountants.

A

External Auditors

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12
Q

For each of the following descriptions, indicate which type of audit (financial statement audit, audit of internal control, compliance audit, operational audit, or fraud audit) best characterizes the nature of the audit being conducted. Also indicate which type of auditor (external auditor, internal auditor, government auditor, or fraud auditor) is likely to perform the audit engagement. If more than one type of auditor might perform the audit engagement, include every appropriate type of auditor in your answer.

A) Evaluate the policies and procedures of the Food and Drug Administration in terms of bringing new drugs to market.

A

Audit: Operational; Auditor: Government.

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13
Q

For each of the following descriptions, indicate which type of audit (financial statement audit, audit of internal control, compliance audit, operational audit, or fraud audit) best characterizes the nature of the audit being conducted. Also indicate which type of auditor (external auditor, internal auditor, government auditor, or fraud auditor) is likely to perform the audit engagement. If more than one type of auditor might perform the audit engagement, include every appropriate type of auditor in your answer.

B) Determine the fair presentation of Ajax Chemical’s balance sheet, income statement, and statement of cash flows.

A

Audit: Financial Statement; Auditor: External.

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14
Q

For each of the following descriptions, indicate which type of audit (financial statement audit, audit of internal control, compliance audit, operational audit, or fraud audit) best characterizes the nature of the audit being conducted. Also indicate which type of auditor (external auditor, internal auditor, government auditor, or fraud auditor) is likely to perform the audit engagement. If more than one type of auditor might perform the audit engagement, include every appropriate type of auditor in your answer.

C) Review the payment procedures of the accounts payable department for a large manufacturer.

A

Audit: Compliance or operational or possibly internal control; Auditor: Internal or External.

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15
Q

For each of the following descriptions, indicate which type of audit (financial statement audit, audit of internal control, compliance audit, operational audit, or fraud audit) best characterizes the nature of the audit being conducted. Also indicate which type of auditor (external auditor, internal auditor, government auditor, or fraud auditor) is likely to perform the audit engagement. If more than one type of auditor might perform the audit engagement, include every appropriate type of auditor in your answer.

D) Examine the financial records of a division of a corporation to determine if any accounting irregularities have occurred.

A

Audit: Fraud or Financial Statement; Auditor: Internal, External, or Fraud.

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16
Q

For each of the following descriptions, indicate which type of audit (financial statement audit, audit of internal control, compliance audit, operational audit, or fraud audit) best characterizes the nature of the audit being conducted. Also indicate which type of auditor (external auditor, internal auditor, government auditor, or fraud auditor) is likely to perform the audit engagement. If more than one type of auditor might perform the audit engagement, include every appropriate type of auditor in your answer.

D) Evaluate whether funds for a low-income public housing project are being used in an efficient manner by the project manager in maintaining and upgrading the property.

A

Audit: Operational; Auditor: Government, External, or Internal.

17
Q

For each of the following descriptions, indicate which type of audit (financial statement audit, audit of internal control, compliance audit, operational audit, or fraud audit) best characterizes the nature of the audit being conducted. Also indicate which type of auditor (external auditor, internal auditor, government auditor, or fraud auditor) is likely to perform the audit engagement. If more than one type of auditor might perform the audit engagement, include every appropriate type of auditor in your answer.

F) Evaluate a company’s computer services department in terms of the efficient and effective use of corporate resources.

A

Audit: Operational; Auditor: Internal or External.

18
Q

For each of the following descriptions, indicate which type of audit (financial statement audit, audit of internal control, compliance audit, operational audit, or fraud audit) best characterizes the nature of the audit being conducted. Also indicate which type of auditor (external auditor, internal auditor, government auditor, or fraud auditor) is likely to perform the audit engagement. If more than one type of auditor might perform the audit engagement, include every appropriate type of auditor in your answer.

G) Audit the partnership tax return of a real estate development company.

A

Audit: Compliance; Auditor: Government.

19
Q

For each of the following descriptions, indicate which type of audit (financial statement audit, audit of internal control, compliance audit, operational audit, or fraud audit) best characterizes the nature of the audit being conducted. Also indicate which type of auditor (external auditor, internal auditor, government auditor, or fraud auditor) is likely to perform the audit engagement. If more than one type of auditor might perform the audit engagement, include every appropriate type of auditor in your answer.

H) Investigate the possibility of payroll fraud in a labor union pension fund.

A

Audit: Compliance or Fraud; Auditor: Government, External, or Fraud.

20
Q

Which of the following statements best describes management’s and the external auditor’s respective levels of responsibility for a public company’s financial statements?

A) Management has the primary responsibility to ensure that the company’s financial statements are prepared in accordance with GAAP, and the auditor provides a guarantee that the statements are free of material misstatement.
B) Management and the external auditor share equal responsibility for the fairness of the entity’s financial statements in accordance with GAAP.
C) Neither management nor the external auditor has significant responsibility for the fairness of the entity’s financial statements in accordance with GAAP.
D) Management has the primary responsibility to ensure that the company’s financial statements are prepared in accordance with GAAP, and the auditor provides reasonable assurance that the statements are free of material misstatement.

A

Management has the primary responsibility to ensure that the company’s financial statements are prepared in accordance with GAAP, and the auditor provides reasonable assurance that the statements are free of material misstatement.

21
Q

Operational auditing is oriented primarily towards:

A) Past protection provided by existing internal control.
B) Efficiency and future improvements to accomplish the goals of management.
C) The accuracy of data reflected in management’s financial records.
D) Verification that an entity’s financial statements are fairly presented.

A

Efficiency and future improvements to accomplish the goals of management.

22
Q

What is the essential meaning of the auditor being independent in fact?

A) The auditor’s sole obligation is to third parties.
B) The auditor may have a direct ownership interest in his auditee’s business if it is not material.
C) The auditor must adopt a critical attitude during the audit.
D) The auditor must be objective.

A

The auditor must be objective.

23
Q

Which of the following is not a part of the role of internal auditors?

A) Conducting operational audits
B) Providing reports on the reliability of financial statements to investors and creditors
C) Engaging in consulting activities
D) Assisting the external auditors

A

Providing reports on the reliability of financial statements to investors and creditors.