Chapter 3: Auditing and Attestation - Performing Audit Procedures and Evaluating Evidence

Question 1

a set of audit procedures that examine the relationships between financial and nonfinancial data

Answer 1

Analytical Procedures

Question 2

declarations or a set of declarations about whether subject matter is based on or conforms to selected criteria (AT 101.08)

Answer 2

Assertions

Question 3

a series of specific and specialized steps or actions auditors take to meet audit objectives

Answer 3

Audit Procedure

Question 4

the risk that the auditor expresses an inappropriate audit opinion when the financial statements are materially misstated

Answer 4

Audit Risk

Question 5

the classification of accounts receivable by various age categories. The balance of accounts receivable in each class (e.g., current, 30, 45, 60, 90, and over 90 days past due) is multiplied by the percentage probability of collection based on past collection history and management judgment (e.g., there may be a 90% likelihood that an account 30 days past due will be collected, while the probability drops to 25% when the account is over 90 days past due)

Answer 5

Aging of Accounts Receivable

Question 6

a concept of the attest function. It is the practitioner’s satisfaction about the reliability of an assertion being made by one party for use by other parties

Answer 6

Assurance

Question 7

he application of an audit procedure to fewer than 100% of the items within an account balance or class of transactions for the purpose of evaluating some characteristic of the balance or class

Answer 7

Audit Sampling

Question 8

an accounting process for reducing an asset or liability by periodic payments or writedowns that are distributed across the time the organization gains a value from or has obligation for the item

Answer 8

Amortization

Question 9

a method of short-term financing, similar to pledging, in which a business uses its accounts receivable as collateral for a loan under a more formal process than pledging

Answer 9

Assigning of Accounts Receivable

Question 10

Another name for the goal of the audit procedures used to obtain evidence about the dollar amounts and disclosures presented in the financial statements

Answer 10

Audit Objective

Question 11

an activity ratio that measures efficiency of credit and collection policies with respect to trade accounts

Answer 11

Accounts Receivable Turnover

Question 12

ratios that measure the efficiency with which the firm uses its resources

Answer 12

Activity Ratio

Question 13

the measure of the quality of audit evidence, that is, its relevance and its reliability in providing support for the conclusions on which the auditor’s opinion is based

Answer 13

Appropriate

Question 14

a formula or plan that disperses an amount and is considered an accounting process

Answer 14

Allocation

Question 15

A basic assumption of accounting is that measurements are made and reports prepared for a specific time period,

Answer 15

Accounting Period

Question 16

an attempt to quantify the effects of future events that cannot be known with certainty, based on assumptions and projections

Answer 16

Accounting Estimate

Question 17

to issue a written communication expressing a conclusion (opinion) on subject matter, or an assertion about the subject matter that is the responsibility of another party

Answer 17

Attest Engagement

Question 18

an individual who performs auditing procedures to determine the validity and fair presentation of financial information or to provide assurance to management on the effectiveness of the organization’s governance, risk management, and/or control processes

Answer 18

Auditor

Question 19

designed to ensure that all transactions have management approval before they are executed and recorded.

Answer 19

Authorization

Question 20

a written outline of work to be done during an audit

Answer 20

Audit Program

Question 21

information that correctly and precisely represents a recorded event

Answer 21

Accuracy

Question 22

the transactions and data relating to each computer-based application system and are, therefore, specific to each such application

Answer 22

Application Controls

Question 23

the path left by a transaction when it is processed

Answer 23

Audit Trail

Question 24

provides auditors with the ability to quickly extract data from computer files

Answer 24

Audit Software

Question 25

entered in the accounting records by an adjusting journal entry

Answer 25

Accrued

Question 26

measures how rapidly the firm’s credit sales are being collected (the lower the ratio, the more efficient the collection)

Answer 26

Average Collection Period

Question 27

a measure of how effectively a business unit uses its assets. It can be illustrated as Total sales/Total average assets.

Answer 27

Asset Turnover

Question 28

the principal laws and regulations used by management and those charged with governance in the preparation of the financial statements of an entity

Answer 28

Applicable Financial Reporting Framework (AFRF)

Question 29

a dollar amount appearing on financial statements

Answer 29

Account Balance

Question 30

a body formed by a company’s board of directors to oversee audit operations and circumstances

Answer 30

Audit Committee

Question 31

the number of shares of stock that the issuing corporation may legally issue as specified in the corporate charter or as amended by a vote of shareholders.

Answer 31

Authorized

Question 32

auditing standards, internal controls are subdivided into two types: accounting and administrative controls

Answer 32

Accounting Controls

Question 33

an “overall” audit opinion which states that the financial statements do not present fairly the financial position or the results of operations or cash flows in conformity with an applicable financial reporting framework (AU-C 705.09)

Answer 33

Adverse Opinion

Question 34

a legal document in accordance with applicable state law that outlines the organization of a corporation and is filed with the Secretary of State as an application for a certificate of incorporation

Answer 34

Articles of Incorporation

Question 35

a person (or firm) possessing knowledge in a particular field other than accounting or auditing

Answer 35

Auditor’s Specialist

Question 36

a receivable that is considered to be uncollectible

Answer 36

Bad Debt

Question 37

the condition of being judged insolvent by the court and having property distributed to creditors when a debtor is unable to meet debts

Answer 37

Bankruptcy

Question 38

he contra asset account used to bring accounts receivable to net realizable value

Answer 38

Bad Debt Allowance

Question 39

the uncertainty of the return related to the special problems of a particular company or industry

Answer 39

Business Risk

Question 40

a plan of action expressed in dollars

Answer 40

Budget

Question 41

a summary of assets, liabilities, and owner’s equity for a company as of a specific date

Answer 41

Balance Sheet

Question 42

a form of confirmation that asks the recipient to fill in the balance or furnish other information

Answer 42

Blank Confirmation

Question 43

a policy-setting committee, elected by and accountable to the shareholders in a business.

Answer 43

Board of Directors

Question 44

the formal written statement specifying the conditions (terms) under which a bond is issued, including any restrictions or covenants

Answer 44

Bond Indenture

Question 45

the tendency of a measure to fall more to one side than the other of what it represents, instead of being equally likely to fall on either side

Answer 45

Bias

Question 46

financial statements presented together for one or more prior periods as well as the current period

Answer 46

Comparative Financial Statements

Question 47

a management assertion that all transactions and events that should be presented in the financial statements are included

Answer 47

Completeness Assertion

Question 48

sets the tone of an organization, influencing the control consciousness of its people

Answer 48

Control Environment

Question 49

the policies and procedures that help ensure that management directives are carried out

Answer 49

Control Activities

Question 50

the risk that a material misstatement that could occur in an assertion about a class of transaction, account balance, or disclosure will not be prevented or detected and corrected on a timely basis by the entity’s internal control.

Answer 50

Control Risk

Question 51

evidence, other than the books of original entry (i.e., the accounting records), which allows the auditor to reach conclusions

Answer 51

Corroborating Evidence

Question 52

direct communication with external independent parties to prove that balances (e.g., cash balances, accounts receivable, accounts payable, notes payable) are correc

Answer 52

Confirmation

Question 53

designed to ensure that all transactions are recorded in the correct account, charged or credited to the correct customer (or vendor), applied to the correct product line, or classified as an intercompany sale (i.e., a review of a fixed asset listing to confirm that no maintenance and repair expenditures have been capitalized).

Answer 53

designed to ensure that all transactions are recorded in the correct account, charged or credited to the correct customer (or vendor), applied to the correct product line, or classified as an intercompany sale (i.e., a review of a fixed asset listing to confirm that no maintenance and repair expenditures have been capitalized).

Question 54

the last day of the accounting period

Answer 54

Cutoff Date

Question 55

someone who has been lawfully appointed to take custody of something

Answer 55

Custodian (of a Minor)

Question 56

a service, the objective of which is to assist management in presenting financial information in the form of financial statements without undertaking to obtain or provide any assurance that there are no material modifications that should be made to the financial statements in order for the statements to be in conformity with the applicable financial reporting framework.

Answer 56

Compilation

Question 57

may be direct, as in the case of handling cash or maintaining an inventory storeroom, or indirect, as in the case of receiving customer checks in the mail or writing checks on the organization’s bank account

Answer 57

Custody of Assets

Question 58

the cost of holding inventory over time (e.g., rent and utilities on storage facilities, salaries for custodial personnel, insurance, write-off of obsolete inventory, lost interest on the funds tied up in inventory)

Answer 58

Carrying Cost

Question 59

The process of obtaining and evaluating a direct communication from a third party in response to a request for information about a particular item affecting financial statement assertions

Answer 59

Confirmation Process

Question 60

the instructions or statements of a computer program, a system of symbols to convert alphanumeric data into a transmittable form, or a set of rules for the manner in which data must be represented

Answer 60

Code

Question 61

all costs that were included in the value of the units of finished product sold during the period

Answer 61

Cost of Goods Sold

Question 62

ownership interest that is subordinate to all other classes of stock (and to all creditors) of the issuing corporation in participation rights and in dividend and liquidation preferences (i.e., holders of common stock are paid after debt and preferred stock obligations have been met)

Answer 62

Common Stock

Question 63

the property that a person can give and in which another can take a security interest or property subject to a security interest.

Answer 63

Collateral

Question 64

a cash balance left on account with the bank in exchange for a loan

Answer 64

Compensating Balance

Question 65

a draft drawn on a bank (drawee) by the writer (drawer or depositor) and payable on demand (to the payee).

Answer 65

Checks

Question 66

the process of recording a cost as an asset and deferring its recognition as an expense to future periods.

Answer 66

Capitalization

Question 67

a provision in a debt agreement that defines activities or obligations of the parties

Answer 67

Covenants

Question 68

add across several columns of numbers to compute a total.

Answer 68

Crossfoot

Question 69

an ownership interest in an incorporated business enterprise, represented by stock certificates that may be bought and sold or otherwise transferred

Answer 69

Capital Stock

Question 70

a joint initiative of the five private-sector organizations listed below and is dedicated to providing thought leadership through the development of frameworks and guidance on enterprise risk management, internal control, and fraud deterrence.

Answer 70

COSO

Question 71

the absence of evidence to the contrary, the entity is assumed to have an indefinite (“ongoing”) life—a life that is sufficiently indefinite and long for the entity to accomplish its objectives and fulfill its legal obligations and that provides the basis for the current/noncurrent balance sheet classification.

Answer 71

Continuity

Question 72

right to receive payment or to sue; it can be used in bankruptcy to identify and categorize creditors.

Answer 72

Claim

Question 73

ets an auditor extract (retrieve) data from the client’s computer and then analyze the data.

Answer 73

Data Extraction Software (DES)

Question 74

a system for assembling, recording, classifying, storing, analyzing, and reporting data

Answer 74

Data Processing System

Question 75

The use of two dates on the auditor’s report to indicate to the user that the auditor’s responsibility for events occurring subsequent to the original report date (the first date) is limited to the specific event referred to by the second date.

Answer 75

Dual Dating

Question 76

the risk that the procedures performed by the auditor to reduce audit risk to an acceptably low level will not detect a misstatement that exists and that could be material, either individually or when aggregated with other misstatements

Answer 76

Detection Risk

Question 77

reported in the financial statements or the notes to the financial statements.

Answer 77

Disclosure

Question 78

the excess of face value over the proceeds (cash paid) for a bond (i.e., the borrower receives proceeds less than the face value), which is contrasted to a Premium

Answer 78

Discount

Question 79

a negative response to a confirmation request, such as when a customer disagrees with the account balance as shown on the confirmation request.

Answer 79

Deviation

Question 80

the process of systematic, rational allocation of the cost of operational assets to the accounting periods benefited. Depreciation is not a process of valuation (FASB ASC 360-10-35-4), does not represent a reserve to replace the asset, and does not mean that cash will be available to replace the asset.

Answer 80

Depreciation

Question 81

a system for assembling, recording, classifying, storing, analyzing, and reporting data.

Answer 81

Data Processing System

Question 82

a special type of attribute sampling used when the occurrence rate (of a deviation) is extremely low.

Answer 82

Discovery Sampling

Question 83

a liquidity ratio that measures a firm’s ability to discharge currently maturing obligations from existing current assets that are expected to be converted into cash within the maturing period of the claims

Answer 83

Current Ratio

Question 84

a leverage ratio that measures the relationships between total debt (current and long-term liabilities) to total equity

Answer 84

Debt-to-Equity Ratio

Question 85

n activity ratio that measures on-hand inventory and the sales activity needed for a number of days

Answer 85

Days’ Supply in Inventory

Question 86

are the distributions of cash, other corporate assets or property, or the corporation’s own stock to stockholders in proportion to the number of outstanding shares held. Accounting for dividends represents a debit to retained earnings and the establishment of a liability at the date of declaration.

Answer 86

Dividends

Question 87

an obligation to pay money, goods, or services due in the future to another entity (creditor)

Answer 87

Debt

Question 88

an expression of no opinion

Answer 88

Disclaimer of Opinion

Question 89

management assertion that assets and liabilities are real and exist at a specific date

Answer 89

Existence

Question 90

the requirement of the auditor to obtain sufficient appropriate audit evidence to provide a reasonable basis for an opinion on financial statements

Answer 90

Evidence

Question 91

the degree to which objectives are achieved; producing the desired effect or result

Answer 91

Effectiveness

Question 92

the amount of audit work performed when the procedures are executed (i.e., the size of the sample)

Answer 92

Extent

Question 93

a special accounting treatment for investments in equity securities used only when the investor:

can exert significant influence or control over the investee (usually with majority—greater than 50%—ownership) and
does not consolidate the financial statements of the subsidiary.

Answer 93

Equity Method

Question 94

any security that represents ownership interest or shares in an enterprise (e.g., common, preferred, and other capital stock) or the right to acquire (e.g., warrants, rights, and call options) or dispose of (put options) ownership interest in an enterprise at fixed and determinable prices

Answer 94

Equity Securities

Question 95

the outflow or other using up of assets or incurring of liabilities (or a combination of both) from delivering or producing goods, rendering services, or carrying out other activities that constitute the entity’s ongoing major or central operations

Answer 95

Expense

Question 96

an unintentional misstatement or omission of amounts or disclosures in financial statements.

Answer 96

Error

Question 97

an integral part of an application system that is designed to identify and report actual transactions and other information that meet criteria having audit significance

Answer 97

Embedded Audit Module

Question 98

characters processed in computer systems and stored in computer files

Answer 98

Data

Question 99

the quantity of inventory that should be ordered at one time in order to minimize the associated costs of carrying and ordering inventory, such as purchase-order processing, transportation, and insurance.

Answer 99

Economic Order Quantity (EOQ)

Question 100

a situation wherein the practitioner renders professional services

Answer 100

Engagement

Question 101

the auditor’s estimate of the ratio of actual deviations to population size

Answer 101

Expected Rate of Deviation

Question 102

the allocation of a pro rata share of income to each share of common stock

Answer 102

Earnings per Share (EPS)

Question 103

the date on which the grantee takes advantage of the option to purchase shares under a stock option or stock rights plan

Answer 103

Exercise Date

Question 104

a letter written by the CPA to the client that represents the contractual understanding between the CPA and the client of the work to be performed, signed by both the CPA and the client

Answer 104

Engagement Letter

Question 105

consists of documents or representations (e.g., confirmations) obtained by the auditor directly from independent parties external to the client entity (e.g., banks, customers, vendors, lenders, lessors, trustees, registrars). External evidence is evidence that has not been processed (“tainted”) by the entit

Answer 105

External Evidence

Question 106

a decrease in (use of) the financial resources of the entity

Answer 106

Expenditure

Question 107

the principal means of communicating financial information to those users external to the entity.

Answer 107

Financial Statements

Question 108

the amount that the asset could reasonably expect to receive for it in a current sale between a willing buyer and a willing seller, that is, other than in a forced or liquidation sale

Answer 108

Fair Market Value (FMV)

Question 109

the intentional misrepresentation or failure to disclose a material fact or facts that results in injury or loss to someone relying on it.

Answer 109

Fraud

Question 110

a graphic depiction, using uniform symbols to show the control flow, primary actions, and interrelationships of a task or a set of tasks

Answer 110

Flowchart

Question 111

he prediction of outcomes, trends, or expected behavior for the economy, an industry, a particular business, or an item such as sales or market prices using statistical methods.

Answer 111

Forecast

Question 112

are tangible (i.e., having physical substance), long-lived (more than one accounting period) assets held for and used in the operations of the enterprise which provide measurable future benefits

Answer 112

Fixed Asset

Question 113

the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date

Answer 113

Fair Value

Question 114

an explanatory note or comment at the end of a financial statement.

Answer 114

Footnote

Question 115

audit standards that must be followed for audits of federal organizations, programs, activities, functions, and funds received by contractors, nonprofit organizations, and other external organizations. These standards are recommended for use in audits of state and local government organizations, programs, activities, and functions

Answer 115

Government Auditing Standards

Question 116

used to estimate inventory cost when a physical inventory count is not possible

Answer 116

Gross Profit Method

Question 117

the Statements on Auditing Standards issued by the Auditing Standards Board (ASB), the senior committee of the AICPA designated to issue pronouncements on auditing matter for nonissuers

Answer 117

Generally Accepted Auditing Standards (GAAS)

Question 118

the sales minus cost of goods sold, the “first stage” profit from the manufacture of goods for sale, and profit before selling and administrative expenses

Answer 118

Gross Margin

Question 119

a business entity that is expected to continue in operation indefinitely

Answer 119

Going Concern

Question 120

a nonsense total

Answer 120

Hash Totals

Question 121

the susceptibility of an assertion about a class of transaction, account balance, or disclosure to a misstatement that could be material, either individually or when aggregated with other misstatements, before consideration of any related controls

Answer 121

Inherent Risk

Question 122

a process, effected by an entity’s board of directors, management and other personnel, which is designed to provide reasonable assurance regarding the achievement of objectives in one or more categories:

Effectiveness and efficiency of operations
Reliability of financial information
Compliance with applicable laws and regulations

Answer 122

Internal Control

Question 123

the seeking of appropriate information from knowledgeable persons inside (both management and staff) or outside the entity (e.g., bankers, attorneys, vendors, customers, predecessor auditor) with the approval of management

Answer 123

Inquiry

Question 124

a time period or date before the cut-off (year-end) date (e.g., a monthly or quarterly period-end).

Answer 124

Interim Period

Question 125

nonphysical and nonfinancial assets (lacking physical substance) whose value derives from the rights that their ownership confers (e.g., goodwill).

Answer 125

Intangible Asset

Question 126

financial information prepared and presented in accordance with an applicable financial reporting framework that comprises either a complete or condensed set of financial statements covering a period or periods less than one full year or covering a 12-month period ending on a date other than the entity’s fiscal year-end.

Answer 126

Interim Financial Information

Question 127

examination of records, documents, and tangible assets

Answer 127

Inspection

Question 128

a financial statement that shows an organization’s revenues and expenses for a defined period of time

Answer 128

Income Statement

Question 129

he charge for the use of money over time. It is the time value of money

Answer 129

Interest

Question 130

an audit of internal control over financial reporting being integrated with the audit of financial statements

Answer 130

Integrated Audit

Question 131

series of questions about specific internal controls

Answer 131

Internal Control Questionnaire (ICQ)

Question 132

an activity ratio that measures the liquidity of inventory; it is the measurement of the effectiveness with which a firm manages its inventory

Answer 132

Inventory Turnover

Question 133

the number of shares of authorized capital stock that have initially been released to individuals or entities outside the issuing corporation

Answer 133

Issued Shares

Question 134

an entity who issues or proposes to issue any security, with some noted exceptions

Answer 134

Issuer

Question 135

test data is developed and integrated into the live processing of actual data resulting from business transactions

Answer 135

Integrated Test Facility

Question 136

audit work performed prior to year-end

Answer 136

Interim Audit Work

Question 137

the price, stated as a percentage over time (usually per year), that is charged for the use of money

Answer 137

Interest Rate

Question 138

be free from conflicts of interest and bias, self-governing, impartial, not subject to control by others, not requiring or relying on something else, not contingent, and acting with integrity and objectivity (i.e., with judgment that is unimpaired and without bias or prejudice).

Answer 138

Independence

Question 139

The established scope must be sufficient to achieve the objectives of the engagement.

Answer 139

Internal Audit Scope

Question 140

the item prepared to enter a transaction or event in the accounting records with equal amounts of debits and credits

Answer 140

Journal Entry

Question 141

he accounting record where transactions and events are first recorded in chronological order

Answer 141

Journal

Question 142

the practice of writing checks against uncleared deposits (playing the float)

Answer 142

Kiting

Question 143

are equity and debt securities of another enterprise held by the entity that are not intended to be converted into cash within one year or one operating cycle, whichever is longer

Answer 143

ong-Term Investment

Question 144

a letter from an auditor to an outside party seeking corroboration of information furnished by management.

Answer 144

Letter of Inquiry

Question 145

a cost principle necessitated when the benefit to be derived from the asset has declined below cost (i.e., disposal value of the asset) in the ordinary course of business. It is applied primarily to inventory

Answer 145

Lower of Cost or Market

Question 146

probable future sacrifices of economic benefits arising from present obligations of the entity to transfer assets or provide services to other entities in the future as a result of past transactions or events.

Answer 146

Liabilities

Question 147

used to edit data during input or processing to validate data

Answer 147

Limit Test

Question 148

The comfort letter provides “negative assurance” to the underwriters that “nothing came to our attention which would indicate that the information does not meet the specified standard.”

Answer 148

Letter for Underwriters

Question 149

a suit that is contested in court. It is a legal action

Answer 149

Litigation

Question 150

a creditor’s legal right to have a debtor’s specified property as security for a debt and to take possession of the property, following prescribed legal procedures if the debt is not paid

Answer 150

Lien

Question 151

provide relevant and reliable evidence for the auditor, especially with respect to official actions of the board of directors and stockholders

Answer 151

Minutes of Meetings

Question 152

written representation from management which affirms (AU-C 580):

the fair presentation of the financial statements and management’s responsibility for them,
the completeness of all information provided to the auditor and in the financial statements,
representations relating to recognition, measurement, and disclosure (including the absence of knowledge of fraud or suspected fraud), and
information concerning subsequent events.

Answer 152

Management Representation Letter

Question 153

an untrue statement that misrepresents the facts and which, by its magnitude or nature, influences the decision making of the user.

Answer 153

Materially Misstated

Question 154

an entity-specific aspect of relevance based on the nature or magnitude or both of the items to which the information relates in the context of an individual entity’s financial report.

Answer 154

Materiality

Question 155

a reported amount that is over (overstated) or under (understated) the actual amount.

Answer 155

Misstatement

Question 156

a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected, on a timely basis

Answer 156

Material Weakness

Question 157

the average among a group of numbers

Answer 157

Mean

Question 158

used to estimate the value of a population by multiplying the number of units in a population by the sample mean of the population

Answer 158

Mean-per-Unit Variables Sampling

Question 159

the process of associating realized revenues with the expenses and expired costs that were necessary to generate the revenues (i.e., that were incurred in the earning process).

Answer 159

Matching

Question 160

costs incurred to keep an asset in good working condition consistent with the original expectation (e.g., costs of labor, parts, and supplies for lubrication, cleaning, calibration, and painting)

Answer 160

Maintenance

Question 161

used in electronic data processing and contains relatively permanent information used for reference and updated periodically

Answer 161

Master File

Question 162

are basic accounting principles and standards and specific conventions, rules, and regulations that define accepted accounting practice at a particular time by incorporation of consensus and substantial authoritative support.

Answer 162

Generally Accepted Accounting Principles (GAAP)

Question 163

one of the attributes used to measure assets and liabilities

Answer 163

Net Realizable Value

Question 164

the type of audit procedure to be used, whether a class of transactions is tested by analytical procedures, tests of controls or substantive testing through confirmation, recalculation, examination of documents (tracing and vouching), reperformance, etc. It is related to the appropriateness of the audit evidence.

Answer 164

Nature

Question 165

all entities except for those defined as issuers

Answer 165

Nonissuer

Question 166

is all aspects of audit risk that are not due to sampling

Answer 166

Nonsampling Risk

Question 167

gross sales less returns, less allowances, and less sales discounts.

Answer 167

Net Sales

Question 168

a contractual right to receive a sum certain of money on fixed or determinable dates at a fixed rate of interest.

Answer 168

Notes Receivable

Question 169

a confirmation letter that requests a reply only if the account balance is considered incorrect.

Answer 169

Negative Confirmations

Question 170

looking at a process or procedures being performed by others

Answer 170

Observation

Question 171

the increase in owner’s equity in a business from its normal or principal operations.

Answer 171

Operating Income

Question 172

a specified price at which a stock option may be exercised

Answer 172

Option Price

Question 173

the number of shares of capital stock that have been issued and are currently owned by stockholders

Answer 173

Outstanding

Question 174

the rate used to charge overhead costs to work in process.

Answer 174

Overhead Rate

Question 175

processed with other computers or networks immediately through the Internet

Answer 175

Online Transaction

Question 176

include the following:

Occurrence and rights and obligations—Disclosed events, transactions, and other matters have occurred and pertain to the entity.
Completeness—All disclosures that should have been included in the financial statements have been included.
Classification and understandability—Financial information is appropriately presented and described, and disclosures are clearly expressed.
Accuracy and valuation—Financial and other information are disclosed fairly and at appropriate amounts.

Answer 176

Presentation

Question 177

a method of short-term financing in which a business uses its accounts receivable as collateral for a loan

Answer 177

Pledging

Question 178

the professional conduct or skill expected of one rendering professional services.

Answer 178

Professional Competence

Question 179

the physical count of inventory taken by the client at year-end (i.e., on the last day of the fiscal year) to obtain evidence regarding existence and completeness.

Answer 179

Physical Inventory

Question 180

“the application of relevant training, knowledge, and experience, within the context provided by auditing, accounting, and ethical standards, in making informed decisions about the courses of action that are appropriate in the circumstances of the audit engagement.”

AU-C 200.14

Answer 180

Professional Judgment

Question 181

a method of measuring the physical quantities in inventory under which the units received (manufactured) and issued (sold) are recorded continuously during the accounting period.

Answer 181

Perpetual Inventory

Question 182

he excess of proceeds (cash paid) on a bond over the face value of the bond

Answer 182

Premium

Question 183

was established by Congress to oversee public company audits

Answer 183

Public Company Accounting Oversight Board (PCAOB)

Question 184

indicates how closely we can reproduce from a sample the results that we would obtain if we were to take a complete count of the population using the same measurement methods.

Answer 184

Precision

Question 185

a misstatement rate in the population, projected from the known deviation or misstatement rate of the sample.

Answer 185

Projected Misstatement

Question 186

a basic management function involving formulation of one or more detailed plans to achieve optimum balance of needs or demands with the available resources.

Answer 186

Planning

Question 187

the auditor runs duplicate processing of the same information, and compares results obtained from the duplicate program with the actual data processed by the client system.

Answer 187

Parallel Simulation

Question 188

all of the members or elements of a group, universe, or field that constitutes the account balance or class of transactions of interest from which the sample will be drawn and about which the auditor wishes to generalize results

Answer 188

Population

Question 189

a string of characters (alpha, numeric, or special) that allows an individual to access a computer or a multiuser computer system

Answer 189

Passwords

Question 190

to bring forth, yield, or cause to exist as a result of labor, machining, thought, or knowledge. It is the conversion of inputs into outputs.

Answer 190

Production

Question 191

one in which the debtor is requested to respond whether or not he is in agreement with the information given

Answer 191

Positive Confirmations

Question 192

an auditor who was previously the auditor of an entity and who has resigned or been replaced by another auditor

Answer 192

Predecessor Auditor

Question 193

it is recorded in the period in which it occurred

Answer 193

Proper Period

Question 194

the amount of cash, or cash equivalent, borrowed (loaned) and the amount subject to interest that equals the face value in an interest-bearing note

Answer 194

Principal

Question 195

an accounting period that ended before the current period.

Answer 195

Prior Period

Question 196

the auditor responsible for the greater portion of financial statements.

Answer 196

Principal Auditor

Question 197

a liquidity ratio that measures the firm’s ability to discharge currently maturing obligations from most liquid (quick) current assets, cash, marketable equity securities (MES), and accounts receivable (AR)

Answer 197

Quick Ratio

Question 198

states that except for the effects of the matter to which the qualification relates, the financial statements present fairly, in all material respects, the financial position, results of operations, and cash flow in accordance with accounting standards generally accepted in the United States or an applicable financial reporting framework.

Answer 198

Qulified Opinion

Question 199

are management assertions that all recorded assets are owned by (i.e., are rights of) the entity and that all liabilities are obligations of (i.e., are owed by) the entity at the given date. (AU-C 315.A114)

Answer 199

Rights and Obligations

Question 200

he combination of inherent risk (IR) and control risk (CR) for an entity

Answer 200

Risk of Material Misstatement (RMM)

Question 201

an edit check of logical correctness of the relationships among the values in an input data set, or the value of an input item with the values of a related data item in a master file.

Answer 201

Reasonableness Check

Question 202

a belief that motivates a person to act.c

Answer 202

Reliance

Question 203

are inflows or other enhancements of the assets of an entity or settlements of its liabilities, or both, during the period from delivering or producing goods, rendering services, or other activities that constitute the entity’s ongoing major or central operations

Answer 203

Revenues

Question 204

n engagement undertaken to achieve, through the performance of inquiry and analytical procedures, limited assurance that there are no material modifications that should be made to the statements in order for them to be in conformity with GAAP or, if applicable, with a comprehensive basis of accounting other than generally accepted accounting principles

Answer 204

Review

Question 205

an estimating technique that uses the relationship (i.e., ratio) of audit to book values to estimate the population value.

Answer 205

Ratio Estimation

Question 206

an aspect of sampling risk when performing substantive tests of details. It is the risk that the sample supports the conclusion that the recorded account balance is not materially misstated when, in fact, it is materially misstated.

Answer 206

Risk of Incorrect Acceptance

Question 207

an aspect of sampling risk when performing substantive tests of details. It is the risk that the sample supports the conclusion that the recorded account balance is materially misstated when, in fact, it is not materially misstated.

Answer 207

Risk of Incorrect Rejection

Question 208

a mathematical equation used to fit the best line possible to the observed data

Answer 208

Regression

Question 209

the study of proportional relationships between recorded amounts. It is the comparison of ratios to expectations.

Answer 209

Ratio Analysis

Question 210

attempts to measure the likelihood of the variability of future returns from the proposed investment

Answer 210

Risk Analysis

Question 211

he risk that the assessed level of control risk based on the sample is greater than the true operating effectiveness of the control.

Answer 211

Risk of Assessing Control Risk Too High

Question 212

an action to bring two related balances into agreement, to identify differences between two related balances (as, for example, the cash balance per the accounting records and the balance per the bank statement), and to detect errors or items that were included in the preparation of one balance omitted from the other.

Answer 212

Reconciliation

Question 213

a systematic process of evaluating the potential risks that are involved in an audit or attestation engagement

Answer 213

Risk Assessment

Question 214

is an aspect of sampling risk related to tests of controls. It is the risk that the assessed level of control risk based on the sample is less than the true operating effectiveness of the control

Answer 214

Risk of Assessing Control Risk Too Low

Question 215

goods to be consumed directly or indirectly in the production process and include major basic materials, parts and subcomponents, and basic supplies (lubrication oils, cleaning materials, nails, glue, etc.).

Answer 215

Raw Material

Question 216

management, owners, family members of owners or management, affiliates, or any party which “can significantly influence the management or operating policies” such that the entity might be “prevented from fully pursuing its separate interests.”

Answer 216

Related Parties (Financial Statements)

Question 217

the degree of assurance to convince a “reasonable man” within the cost-benefit constraint.

Answer 217

Reasonable Assurance

Question 218

provides information about the entity’s assets, liabilities, and equity and their relationships to one another at a particular point in time

Answer 218

Statement of Financial Position

Question 219

an extra digit, precisely computed, that is added to a basic identification number (e.g., employee ID number) to detect transpositions or other clerical errors.

Answer 219

Self-Checking Digit

Question 220

tests of transaction details and account balances and analytical procedures performed to detect material misstatements in the account balances, transaction class, and disclosure components of the financial statements. These tests are used to test financial statement assertions.

Answer 220

Substantive Procedures

Question 221

a federal government agency charged with the responsibility of writing rules consistent with federal security laws, investigation of violations, maintenance of financial disclosure documentation, and initiation of action against violators of federal securities acts.

Answer 221

Securities and Exchange Commission (SEC)

Question 222

as a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.

Answer 222

Significant Deficiency

Question 223

a document that initiates a transaction

Answer 223

Source Document

Question 224

a separate ledger summarized in a single controlling account in the general ledger. It is a special ledger that provides more detailed information about an account.

Answer 224

Subsidiary Ledger

Question 225

the directing and reviewing the efforts of assistants

Answer 225

Supervision

Question 226

To achieve adequate internal control in a business enterprise, the primary functions of the business should be identified. The duties of these functions should be outlined and control procedures designed to achieve adequate internal control. In designing control procedures, the duties involved in accomplishing these functions should be separated as much as possible to attain control

Answer 226

Segregation (or Separation) of Duties

Question 227

the ratio of number of deviations in the sample to the sample size

Answer 227

Sample Deviation Rate

Question 228

an identified and assessed risk of material misstatement that, in the auditor’s professional judgment, requires special audit consideration.

Answer 228

Significant Risk

Question 229

the amount and kind of audit evidence required by an auditor to form an opinion (i.e., Is there enough evidence?)

Answer 229

Sufficient

Question 230

a sampling plan in which the laws of probability are used for selecting and evaluating a sample from a population for the purpose of reaching a conclusion about the population

Answer 230

Statistical Sampling

Question 231

dividing the population into relatively homogeneous groups (layers)

Answer 231

Stratified Sampling

Question 232

arises from the possibility that, when a test of controls or a substantive test is restricted to a sample, the auditor’s conclusions may be different from the conclusions that would have been reached if the tests have been applied in the same way to all of the items in the account balance or class of transactions (i.e., a particular sample may contain proportionately more or less deviation from prescribed internal controls or monetary misstatement than exists in the balance or class as a whole).

Answer 232

Sampling Risk

Question 233

obligations whose liquidation is reasonably expected to require either the use of existing resources properly classified as current assets or the creation of other current liabilities (FASB ASC 210-10-45-6)

Answer 233

Short-Term Obligation

Question 234

a right to purchase shares of stock in accordance with an agreement, on payment of a specified amount.

Answer 234

Stock Option

Question 235

total residual ownership interest in the corporation: net assets and total assets in excess of total liabilities

Answer 235

Stockholders’ Equity

Question 236

a predetermined quantity or cost of inputs (direct material, direct labor, and manufacturing overhead) that should be required to produce one unit of output

Answer 236

Standard Cost

Question 237

a computer language, such as COBOL or FORTRAN, that is an input to a translation process

Answer 237

Source Code

Question 238

the member or element of the population which is selected, such as each credit sales invoice, each customer account, cash receipt, invoice, canceled check, etc.

Answer 238

A

Question 239

an event occurring after the balance sheet date but prior to the issuance of the auditor’s report, which has a material effect on the financial statements and therefore requires adjustment or disclosure in the statements

Answer 239

Subsequent Event

Question 240

within the near future or usually within the next fiscal year or operating cycle, whichever is longer

Answer 240

Short Term

Question 241

provides information about the entity’s assets, liabilities, and equity and their relationships to one another at a particular point in time.

Answer 241

Statement of Financial Position

Question 242

an agreement which creates or provides for a security interest

Answer 242

Security Agreement

Question 243

provides evidence on a sample basis about the presence or absence of a control condition

Answer 243

Test of Controls

Question 244

the management assertion that all assets, liabilities, revenues, and expenses have been included in the financial statements at the proper amount

Answer 244

Valuation

Question 245

follow the course of development of some object

Answer 245

Trace

Question 246

the maximum monetary misstatement that may exist in an account balance or class of transactions, when combined with misstatements in other accounts, without causing the financial statements to be misstated

Answer 246

Tolerable Misstatement

Question 247

he maximum population rate of deviations from the prescribed internal control that the auditor is willing to accept without altering the planned assessed level of control risk.

Answer 247

Tolerable Rate

Question 248

the person(s) with responsibility for overseeing the strategic direction of the entity and obligations related to the accountability of the entity

Answer 248

Those Charged with Governance

Question 249

remove an amount from the accounting records, usually by a corresponding entry to an expense or allowance account, as to write off a specific account receivable with a credit to accounts receivable and a debit to the allowance for uncollectible accounts.

Answer 249

Write-Off

Question 250

an activity ratio that measures the effectiveness with which the firm uses total assets to generate sales. It indicates the extent to which total assets are used—a low turnover indicates under-utilization and sales should be increased or assets should be disposed of, or both.

Answer 250

Total Assets Turnover

Question 251

the time frame during which the audit procedure is performed (e.g., interim or at year-end), which is related to the appropriateness of the audit evidence.

Answer 251

Timing of Audit Procedure

Question 252

a particular kind of external event, namely, an external event involving transfer of something of value between two or more entities.

Answer 252

Transaction

Question 253

the comparison of similar ratios for the same firm at different points in time, the comparison of prior-year and current-year ratios for a firm, and the analysis of changes within the firm over time.

Answer 253

Trend Analysis

Question 254

data specifically designed and developed to test the accuracy and completeness of a computer program.

Answer 254

Test Data

Question 255

designed to ensure that all recorded transactions are those which should have been recorded (i.e., that the transactions are real and actually occurred and are properly documented).

Answer 255

Validity

Question 256

states that the financial statements present fairly, in all material respects, the entity’s financial position, results of operations, and cash flows in accordance with accounting principles generally accepted in the United States of Ameri

Answer 256

Standard Auditor’s Report

Question 257

document the work done and conclusions reached by the auditor, showing procedures applied, tests performed, information obtained, and pertinent conclusions reached

Answer 257

Workpapers

Question 258

shares of the issuing corporation’s own stock (common or preferred) that were issued and were later reacquired in the open market by the issuing corporation and are still held by the issuing corporation

Answer 258

Treasury Stock

Question 259

a listing of all account balances as of a particular date

Answer 259

Trial Balance

Question 260

states that the financial statements are presented fairly in accordance with accounting principles generally accepted in the United States of America or an applicable financial reporting framework—the basic premise being that the auditor has tested the financials and they give an accurate representation of the company’s condition.

Answer 260

Unmodified Opinion