Chapter 6

Question 1

Evaluations of financial information through analysis of plausible relationships among financial and nonfinancial data

Answer 1

Analytical Procedures

Question 2

Eight audit objectives that must be met before the auditor can conclude that any given account balance is fairly stated

Answer 2

Balance-Related Audit Objectives

Question 3

What are the 8 Balance-Related Audit Objectives?

Answer 3

Existence, Completeness, Accuracy, Classification, Cutoff, Detail Tie-in, Realizable Value, and Rights and Obligations

Question 4

A method of dividing and auditing by keeping closely related types of transactions and account balances in the same segment

Answer 4

Cycle Approach

Question 5

An unintentional misstatement of the financial statements

Answer 5

Error

Question 6

An intentional misstatement of the financial statements

Answer 6

Fraud

Question 7

Intentional misstatements or omission of amounts or disclosures in financial statements to deceive users; often called management fraud

Answer 7

Fraudulent Financial Reporting

Question 8

Implied or expressed representations by management about classes of transactions, related account balances, and presentation and disclosures in the financial statements

Answer 8

Management Assertions

Question 9

A fraud involving the theft of an entity’s assets (also called defalcation)

Answer 9

Misappropriation of Assets

Question 10

Failure to comply with applicable laws and regulations (also called illegal acts)

Answer 10

Noncompliance with Laws and Regualtions

Question 11

The four aspects of a complete audit

Answer 11

Phases of Audit Process

Question 12

What are the phases of the audit process

Answer 12

Plan and design an audit approach, perform tests of controls and substantive tests of transactions, perform analytical procedures and tests of details of balances, and complete the audit and issue an audit report

Question 13

The four audit objectives that must be met before the auditor can conclude that presentation and disclosures are fairly stated

Answer 13

Presentation and Disclosure-Related Audit Objectives

Question 14

What are the 4 presentation and disclosure-related audit objectives

Answer 14

Occurrence and rights and obligations, completeness, accuracy and valuations, and classification and understandability

Question 15

Assertions that have a meaningful bearing on whether an account is fairly stated and used to assess the risk of material misstatement and the design and performance of audit procedures

Answer 15

Relevant Assertions

Question 16

Audit procedures testing for monetary misstatements to determent whether the six transaction-related audit objectives have been satisfied for each class of transactions

Answer 16

Substantive Tests of Transactions

Question 17

Audit procedure to test the effectiveness of controls in support of a reduced assessed control risk

Answer 17

Test of Controls

Question 18

Audit procedures testing for monetary misstatements to determine whether the eight balance-related audit objectives have been satisfied for each significant account balance

Answer 18

Test of Details of Balances

Question 19

Six audit objectives that must be met before the auditor can conclude that the total for any given class of transactions is fairly stated

Answer 19

Transaction-Related Audit Objectives

Question 20

What are the 6 transactions-related audit objectives

Answer 20

occurrence, completeness, accuracy, classification, timing, and posting and summerization

Question 21

Misstatements are considered BLANK if the combined uncorrected errors and fraud in the financial statements would likely change the decisions of a reasonable person using the statements

Answer 21

Material

Question 22

Three reasons the auditor is responsible for reasonable assurance and not absolute assurance

Answer 22

Audit evidence results from testing a sample of a population, accounting presentations involve complex estimates that involve uncertainty, and fraudulently prepared financial statements are extremely difficult for the auditor to detect

Question 23

What is the auditors best defense when material misstatements are not discovered?

Answer 23

The audit was conducted in accordance with audit standards

Question 24

Auditing standards require an audit be designed to provide reasonable assurance of detecting both BLANK and BLANK

Answer 24

material errors and fraud

Question 25

The six characteristics of skepticism:

Answer 25

Questioning Mindset, Suspension of Judgement, Search for Knowledge, Interpersonal Understanding, Autonomy, and Self-Esteem

Question 26

5 auditing cycles

Answer 26

Sales and collection, Acquisition and payment, Payroll and personnel, Inventory and warehouse, and capital acquisition and repayment

Question 27

This cycle that is the primary focus of most audits

Answer 27

Sales and Collection

Question 28

The capital acquisition cycle is closely related to the BLANK cycle

Answer 28

Acquisition and Payment

Question 29

The BLANK cycle is closely related to all other cycles

Answer 29

Inventory and Warehouse

Question 30

Auditors have found that the most efficient and effective way to conduct audits is to obtain BLANK

Answer 30

some combination of assurance for each class of transaction and for the ending balance in the related accounts

Question 31

BLANK are part of the criteria management uses to record and disclose accounting information in financial statements

Answer 31

Management Assertions

Question 32

3 categories of assertions

Answer 32

Assertions about classes of transactions and events for the period under audit, account balances at period end, presentation and disclosure

Question 33

Recorded transactions exist (Transaction-Related)

Answer 33

Occurrence

Question 34

Existing transactions are recorded (Transaction-Related)

Answer 34

Completeness

Question 35

Recorded transactions are stated at the correct amounts (Transaction-Related)

Answer 35

Accuracy

Question 36

Recorded transactions are properly included in the master files and are correctly summarized (Transaction-Related)

Answer 36

Posting and Summerization

Question 37

Transactions included in the client's journal are properly classified (Transaction-Related)

Answer 37

Classification

Question 38

Transactions are recorded on the correct dates (Transaction-Related)

Answer 38

Timing

Question 39

Amounts included exist (Balance-Related)

Answer 39

Existence

Question 40

Existing amounts are included (Balance-Related)

Answer 40

Completeness

Question 41

Amounts included are stated at the correct amounts (Balance-Related)

Answer 41

Accuracy

Question 42

Amounts included in the client's listings are properly classified (Balance-Related)

Answer 42

Classification

Question 43

Transactions near the balance sheet date are recorded in the proper period (Balance-Related)

Answer 43

Cutoff

Question 44

Details in the account balance agree with related master files amounts, foot to the total in the account balance and agree with the total in the general ledger (Balance-Related)

Answer 44

Detail Tie-in

Question 45

Assets are included at the amounts estimated to be realized (Balance-Related)

Answer 45

Realizable Value