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CPA > CPA Terms > Flashcards

CPA Terms Flashcards

1
Q

US GAAP Acronym

A

United States Generally Accepted Accounting Principles

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2
Q

What is GAAP

A

Merely a collection of commonly-followed accounting rules and standards for financial reporting. This ensures transparency and uniformity in financial reporting across organizations in each industry. Following GAAP doesn’t guarantee transparency or lack of errors and omissions intended to mislead investors

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3
Q

US SEC Acronym

A

United States Securities and Exchange Commission

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4
Q

IFRS Acronym

A

International Financial Reporting Standards. The SEC plans to transition to IFRS from GAAP. This is a London based set of accounting principles, used by more than 100 countries

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5
Q

FASB Acronym

A

Financial Accounting Standards Board

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6
Q

FASAC Acronym

A

Financial Accounting Standards Board Advisory Council

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7
Q

What does FASAC do?

A

Advises the FASB on the rules they set for GAAP

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8
Q

What does FASAC do?

A

Advises the FASB on the rules they set for GAAP

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9
Q

GASB Acronym

A

Government Accounting Standards Board

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10
Q

What does GASB do?

A

Establishes and manages the standards that the government follows

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11
Q

What is Canada’s version of FASB called?

A

CICA - Canadian Institute of Chartered Accountants

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12
Q

IASB Acronym

A

International Accounting Standards Board

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13
Q

What does IASB do?

A

Administers IFRS

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14
Q

Why is the convergence of GAAP and IFRS encouraged?

A

Investors are increasingly making their investment decisions from a global standpoint. All countries conforming to the same methods of accounting, auditing and other business practices will allow for optimal comprehension, clarity and consistency

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15
Q

What is the SEC tool that allows investors to compare companies in different countries on an apples-to-apples basis and find material differences?

A

The SEC reconciliation requirement

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16
Q

What is the SEC tool that allows investors to compare companies in different countries on an apples-to-apples basis and find material differences?

A

The SEC reconciliation requirement which reconciles IFRS to US GAAP

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17
Q

AUD, BEC, FAR, REG

A

The four sections of the CPA exam

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18
Q

AUD (of the CPA exam)

A

Accounting and Auditing

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19
Q

FAR (of the CPA exam)

A

Financial Accounting and Reporting

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20
Q

REG (of the CPA exam)

A

Regulation

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21
Q

BEC (of the CPA exam)

A

Business Environment and Concepts

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22
Q

caveat

A

a warning against certain acts

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23
Q

ascertain

A

make sure by making an inquiry or other effort

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24
Q

corroborate

A

providing evidence that establishes confirmation and removes doubt which makes something an indisputable fact

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25
Q

defalcation

A

theft, misuse or misappropriation of funds by a person trusted with its charge. a form of embezzlement, either through the misallocation of funds or the failure to account for received funds

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26
Q

embezzlement

A

theft or misappropriation of funds placed in one’s trust or belonging to one’s employer

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27
Q

The Internal Revenue Service usually performs which type of audit?

A

compliance audits

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28
Q

An auditor’s primary consideration regarding an entity’s internal control structure policies and procedures is whether the policies and procedure

A

Affect the financial statements

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29
Q

A person identified as an audit committee financial expert of an issuer generally must have acquired the attributes of a financial expert through any of the following experiences, except

A

??

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30
Q

An auditor finds several errors in the financial statements that the client prefers not to correct. The auditor determines that the errors are not material in the aggregate. Which of the following actions by the auditor is most appropriate?

A

Document the errors in the summary of uncorrected errors, and document the conclusion that the errors do not cause the financial statements to be misstated.

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31
Q

The understanding with the client regarding a financial statement audit generally includes which of the following matters?

A

The responsibilities of the auditor. The understanding between the client and auditor must be established through the engagement letter in the client-acceptance phase of the audit

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32
Q

Noncompliance refers to

A

illegal acts

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33
Q

issuer

A

legal entity that develops, registers and sells securities to finance its operations

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34
Q

security

A

tradable/negotiable financial asset/instrument of any kind issued by a business entity or government. it gives the buyer the right to either interest payments or a share of the earnings of the issuer

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35
Q

example of security

A 
bank notes
bonds
debentures
common stocks
options
warrants
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36
Q

option

A

a financial instrument that gives its holder the right, but not the obligation, to buy or sell something at a predefined price within a designated date range. if the holder decides not to exercise the instrument by the end of the designated date range, it expires

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37
Q

what are the 2 types of options?q

A

call option & put option

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38
Q

call option

A

the holder has a right to buy something from the other party to the option

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39
Q

put option

A

the holder has a right to sell something to the other party to the option

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40
Q

collateral

A

an asset or group of assets that a borrower or guarantor has pledged as security for a loan. the lender has the legal right to seize and sell the asset(s) if the borrower is unable to pay back the loan by the agreed date

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41
Q

guarantor

A

a person, organization or thing that guarantees something

42
Q

bond

A

fixed obligation to pay that is issued by a corporation or govt entity to investors

43
Q

what are bonds used for?

A

to raise cash for operational or infrastructure projects

44
Q

what should be done regarding the nature and timing of communications between an accounting firm performing an initial audit of an issuer and the issuer’s audit committee

A

Prior to accepting the engagement, the firm should describe in writing all relationships that, as of the date of the communication, may reasonably be thought to bear on independence.

45
Q

nonattest

A

services provided to a client that are not specifically related to the performance of an attest engagement

46
Q

stratify

A

form or arrange into strata (layers, classes, castes)

47
Q

sole proprietorship

A

one owner. business is not a separate legal entity apart from the owner

48
Q

advantages of sole proprietorship

A

simplest to form and operate
no need for approval from others for business making decisions
no obligation to share profit
profit is only taxed once

49
Q

tax

A

a compulsory contribution to state revenue, levied by the govt on workers’ income and business profits, or added to the cost of some goods, services and transactions
another definition of tax is a strain or heavy demand

50
Q

An auditor has performed bookkeeping and other nonattest services that are not prohibited by the independence rules of the AICPA Code of Professional Conduct. The auditor has established and documented an understanding with the potential audit client, and the client has agreed to assume all management responsibility.

A

The auditor may conduct the audit under GAAS without meeting any additional requirements

51
Q

best characterization of an auditor’s exercise of professional skepticism?

A

Having an attitude that includes a questioning mind

52
Q

What is control risk?

A

The risk that a material misstatement will not be prevented or detected on a timely basis by the client’s internal controls

53
Q

Regarding a nonissuer’s compliance with laws and regulations, an auditor performing an audit of the entity’s financial statements is responsible for

A

Obtaining a general understanding of the legal and regulatory framework applicable to the entity and how the entity is complying with that framework

54
Q

In performing interviews and examining documents related to preliminary work in a financial statement audit of a nonissuer, an auditor identifies a business risk associated with plans for a new product line. What should the auditor do as a result?

A

Analyze the newly identified risk in conjunction with other known business risks and consider whether there is an immediate consequence for the risk of material misstatement at various levels of the audit

55
Q

In addition to descriptions of the nature, timing, and extent of planned risk assessment procedures and planned further audit procedures, which of the following additional pieces of information should be documented in the audit plan?

A

Other audit procedures to be performed to comply with generally accepted auditing standards.

56
Q

GAAS

A

Generally Accepted Auditing Standards

57
Q

An auditor would least likely initiate a discussion with those charged with governance of an audit client concerning

A

The maximum dollar amount of misstatements that could exist without causing the financial statements to be materially misstated

58
Q

reasonable assurance

A

A high, but not absolute, level of assurance to allow an auditor to detect a material misstatement

59
Q

a conceptual similarity between generally accepted auditing standards and the attestation standards?

A

The requirement that the CPA be independent in mental attitude is included in both sets of standards.

60
Q

Before accepting an engagement to audit a new client, a CPA is required to obtain

A

The prospective client’s consent to make inquiries of the predecessor, if any

61
Q

what would heighten an auditor’s concern about the risk of fraudulent financial reporting?

A

An overly complex organizational structure involving unusual lines of authority

62
Q

A company hires one of its board members, a CPA, to issue accounting reports for the company. Assuming any required disclosures are made, which report may the CPA issue without violating independence rules?

A

Compilations. A compilation is the only form of attest engagement that is not also an assurance engagement. As a result, it is the only attest engagement that may be performed when the CPA is not independent, which would be the case if the CPA is a member of the client’s board. Reviews, audits, and agree-upon procedures engagements are all assurance engagements that require independence.

63
Q

According to generally accepted auditing standards, which term is used to refer to the unconditional requirement imposed on auditors?

A

Must

64
Q

compliance audit

A

an examination performed to determine if an entity is in compliance with the terms of an agreement, such as a loan agreement or bond indenture agreement; or with laws and regulations to which it is subject

65
Q

indenture

A

a legal agreement, contract or document

66
Q

operational audit

A

an examination of an entity’s operating procedures to evaluate their efficiency and effectiveness in meeting the entity’s objectives. often performed by internal auditors

67
Q

financial statement audit

A

an examination of financial info to determine if financial statements are presented fairly in accordance with an applicable financial reporting framework

68
Q

applicable financial reporting framework

A

a comprehensive set of principles and standards that prescribe how financial statement elements that result from an entity’s transactions, events and circumstances are to be recognized, measured and disclosed, including a general purpose framework and a special purpose framework

69
Q

general purpose financial reporting framework

A

a financial reporting framework designed to meet the general needs of financial statement users, involving a comprehensive set of measurement, recognition and disclosure principles achieving wide acceptance, such as GAAP, IFRS or the pronouncements of the GASB

70
Q

special purpose framework

A

a financial reporting framework (FRF) that is not a general purpose framework and is designed to meet the specific needs of those familiar with the framework and how it is used to evaluate an entity’s financial position or performance, such as a cash basis, tax basis, regulatory agency basis, contractual basis, or other basis of accounting. Also known as an other comprehensive basis of accounting (OCBOA)

71
Q

auditing standards

A

a framework of guidelines established by an appropriate authoritative body, such as the PCAOB for issuers or the Auditing Standards Board (ASB) for nonissuers, to be followed by an auditor to make certain that the objectives of the engagement are met

72
Q

auditing procedures

A

the actions taken by the auditor to obtain sufficient appropriate audit evidence in support of the conclusions on which the auditor’s opinion is based

73
Q

Generally Accepted Auditing Standards (GAAS) is

A

the body of authoritative audit literature established by the Auditing Standards Board of the AICPA to be applied in the audits of financial statements of nonissuer (nonpublic) companies and against which the quality of audits are measured and judged

74
Q

ASB

A

Auditing Standards Board

75
Q

Nonissuer means

A

nonpublic

76
Q

predecessor auditor

A

the independent CPA who performed or was engaged to perform an audit of a new audit client’s financial statements from its most recent prior period

77
Q

professional skepticism

A

an attitude that includes a questioning mind and a critical assessment of audit evidence, with an alertness for conditions that may indicate a material misstatement - being alert to contradictory info from different sources, to the possibility that documentary evidence may not be reliable, to the possibility that the client is being dishonest when providing info, and to indications of fraud

78
Q

integrity

A

honesty and fairness with an incorruptible commitment to ethical values

79
Q

objectivity

A

refraining from compromising professional judgment due to bias, conflict of interest, or undue influence of others

80
Q

undue influence

A

occurs when an involves a relationship between two parties with one party in a superior position. individual is able to persuade another’s decisions due to the relationship between the two parties. the more powerful individual uses this advantage to coerce the other individual to make decisions that are not in their long-term best interest

81
Q

independence

A

an auditor’s ability to perform without compromising professional judgment and act with integrity, objectivity, and professional skepticism, consisting of independence of mind (fact) and independence in appearance, required for the performance of attest engagements. independence is considered to be impaired, for instance, if a direct or a material indirect financial interest is held by the auditor or family member

82
Q

due professional care

A

applying a level of care to the performance of work that would be expected of a professional with comparable qualifications, enabling an auditor to act without negligence with skill and due diligence

83
Q

reasonable assurance

A

the degree of assurance provided by an audit opinion representing a high degree of assurance, but not absolute. reasonable assurance indicates a high degree of reliability without indicating perfection, and is supported by sufficient, appropriate audit evidence gathered

84
Q

unconditional requirement

A

a requirement the accountant is expected to fulfill, when applicable, the nonperformance of which prevents an engagement from being performed in compliance with applicable standards, such as GAAS in the case of an audit. unconditional requirements use the words “must” or “is required to”

85
Q

presumptively mandatory requirement

A

a requirement the accountant is expected to fulfill, when applicable, in order to be in compliance with applicable standards, but that may be avoided in rare circumstances where the accountant can justify a departure and documents the alternative procedures that accomplish the objectives of the requirement. presumptively mandatory requirements use the word “should”

86
Q

those charged with governance

A

the individuals or parties responsible for overseeing the strategic direction of any entity and obligations related to accountability - generally the board of directors, although often limited to the audit committee

87
Q

engagement letter

A

documentation of the understanding between the accountant and the client required to be in the form of an engagement letter or other suitable form of written agreement, signed by both the accountant and the client for review, compilation and preparation engagements and in an duit engagement, although for audit engagements, it is not required to be signed

88
Q

materiality

A

measurement of the degree of misstatements and omissions that are expected to, individually or in the aggregate, influence users’ economic decisions made on the basis of the financial statements

89
Q

audit risk formula

A

AR = IR x CR x DR

AR - audit risk
IR - inherent risk
CR - control risk
DR - detection risk

90
Q

audit risk definition

A

the risk that the auditor may unknowingly fail to appropriately modify the audit opinion on financial statements that are materially misstated. consists of inherent risk, control risk and detection risk, such that audit risk

91
Q

inherent risk (IR)

A

before considering any related internal controls, the susceptibility of an assertion to misstatement that could be material, individually or in the aggregate

92
Q

control risk (CR)

A

the risk a misstatement in an assertion, that could be materially, individually or in the aggregate, will not be prevented or detected and corrected on a timely basis due to t a lack of effective internal controls

93
Q

risk of material misstatement (RMM)

A

the risk that, prior to the audit, relevant assertions contain misstatements that are material to the financial statements. consists of IR and CR, such that RMM = IR x CR

94
Q

risk of material misstatement (RMM) formula

A

RMM = IR x CR

95
Q

detection risk (DR)

A

the risk that the auditors will not detect misstatements in the financial statements that could be material, individually or in the aggregate

96
Q

fraud

A

an intentional act on the part of one or more individuals, which may result in a material misstatement to the financial statements and consists of either misappropriation of assets or fraudulent financial reporting

97
Q

error

A

an unintentional misstatement in the financial statements or omission of required information from the financial statements

98
Q

known misstatements

A

misstatements specifically identified during the audit

99
Q

likely misstatements

A

misstatements not specifically identified, but are likely to exist based on indications derived from audit evidence obtained or due to a difference between management and auditor judgments

100
Q

fraud risk triangle

A

3 characteristics of fraud that are generally assumed to be present whenever fraud has occurred:

motivation (incentive/pressure)
opportunity
rationalization (the perpetrator’s ability to rationalize the fraudulent act)

101
Q

quality control

A

a firm’s system to provide it with reasonable assurance that the CPA firm and its personnel comply with applicable professional standards and only issue reports that are appropriate under the circumstances

102
Q

Assets are also known as

A

economic resources

CPA (10 decks)

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