Exam 1 (1,2,3,4,18) Quizes Flashcards
Independent auditing can best be described as
A discipline that provides assurance regarding the results of accounting and other functional operations and data.
Information asymmetry
Refers to an imbalance of information between stockholders and the management of the company.
Which of the following best describes the primary reason an independent auditor reports on financial statements?
To add credibility, where appropriate, since management may not be perceived as objective with respect to its own financial statements.
Financial statement users’ demand for assurance is similar to that of a potential home buyer who hires a home inspector in that
There are often information asymmetry and conflicts of interest.
Assurance services differ from auditing services in that
Assurance services may include a report about the relevance and timeliness, not just the reliability, of the information.
Which of the following best describes the relationship between attestation services and audit services?
Auditing is a subset of attestation that involves the issuance of an opinion regarding the fairness of financial statements.
The fact that errors and/or omissions in certain relatively insignificant account balances would not affect an auditor’s decision when reporting on the financial statements as a whole relates most closely to which major audit concept?
Materiality.
Audit evidence can be gathered from
many sources and is not limited to the underlying accounting data.
Audit risk
Is the risk that a “clean” opinion will be issued when, in reality, the financial statements are materially misstated.
The examination of all of an entity’s transactions would make an audit very costly. Thus, auditors rely heavily on sampling as a way to obtain evidence. Which of the following would result in a smaller sample?
A decrease in the desired level of assurance.
Which of the following audit phases would generally be conducted before all of the others listed below?
Gaining an understanding of the auditee’s industry.
An auditor’s evaluation of the reasonableness of a company’s loan loss reserve would normally be made during which phase of the audit?
Auditing business processes and related accounts.
Gaining an understanding of the auditee and its environment includes all of the following areas except
The audit fee and timeline for completion of the work.
The most favorable type of audit opinion for an entity to receive is
Unqualified.
The study and practice of auditing is unlike other areas in accounting because it
Requires common sense and some creativity.
The Public Company Accounting Oversight Board [PCAOB] derives its authority to set and enforce auditing standards for public company audits from
An Act of Congress.
Which of the following is generally not considered one of the five business processes or cycles?
Information technology.
Which of the following is NOT a typical responsibility for an associate/staff level auditor?
Assisting in the development of the audit plan.
Prior to the Sarbanes-Oxley Act of 2002, the _________was responsible for creating all new auditing standards in the United States. Today, for publicly held companies, that responsibility rests with the _____________.
AICPA Auditing Standards Board [ASB]; Public Company Accounting Oversight Board [PCAOB].
To exercise due professional care, an auditor should
Critically review the work performed and judgment exercised by those assisting in the audit
What is the essential meaning of the generally accepted auditing standard that requires the auditor to be independent?
The auditor must be without bias with respect to the auditee.
The principles underlying an audit conducted in accordance with GAAS as developed by the ASB and the IAASB include all of the following except
The auditor should plan and conduct the audit to obtain assurance that the financial statements are free of any misstatement.
The responsibility for implementing sound accounting practices and principles, maintaining an adequate internal control structure, and making fair representations in the financial statements rests primarily with the
Senior management.
Which of the following is considered an example of a compliance audit?
The examination of a company’s adherence to government-mandated safety provisions.
Which of the following best describes the relationship between management and the board of directors?
Management reports to the board of directors.
Which of the following best describes the roles of the American Institute of Certified Public Accountants [AICPA] and the Public Company Accounting Oversight Board [PCAOB] in establishing auditing standards?
Auditing standards issued by AICPA and PCAOB are considered minimum standards of performance for auditors. AICPA for non-public and PCAOB for public.
“Mid-tier” firms
Are national in their practices and have international affiliates.
Which of the following organizations affect the environment that CPAs work in?
AICPA, SEC, and PCAOB.
Which of the following primarily shapes the context in which auditing takes place? The American Institute of Certified Public Accountants [AICPA].
Legislation passed by Congress.
An “integrated audit” includes
A financial statement audit and an audit of internal control over financial reporting.
