Exam 1

Question 1

Assertions

Answer 1

representation, explicit or otherwise, with respect to the recognition, measurement, presentation and disclosure of information in the financial statements, which are inherent in management, representing that the financial statements are prepared in accordance with the applicable financial reporting framework.

Question 2

Assurance services

Answer 2

independent professional services that improve the quality of information for decision makers

Question 3

Attest services

Answer 3

services provided by a practitioner engaged to issues a report on subject matter that is the responsibility of another party.

Question 4

Audit Data Analytic

Answer 4

using analysis, modeling and visualization to discover and analyze patterns, anomalies and other information in the context of the audit

Question 5

Audit Evidence

Answer 5

all the information used by the auditor in arriving at the conclusions on which the audit opinion is based. It’s information to which audit procedures have been applied

Question 6

Audit risk

Answer 6

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

Question 7

Information Asymmetry

Answer 7

the concept that the manager generally has more information about the true financial position and results of operations of the entity than the absentee owner does

Question 8

Information Risk

Answer 8

the risk that information circulated by a company’s management could be false or misleading

Question 9

Materiality

Answer 9

the maximum amount by which the auditor believes the financial statements could be misstated and still not affect the decisions of users

Question 10

Misstatement

Answer 10

a departure from the applicable reporting framework that causes the financial statements to not be presented fairly.

Question 11

Reasonable Assurance

Answer 11

the concept that an audit done in accordance with auditing standards may fail to detect a material misstatement in a client’s financial statements.

Question 12

Risk of material misstatements

Answer 12

The risk that the financial statements are materially misstated prior to the audit

Question 13

Unqualified audit report

Answer 13

A clean audit report, indicating the auditor’s opinion that a client’s financial statements are fairly presented in accordance with agreed-upon criteria

Question 14

Audit committee

Answer 14

• a committee consisting of members of the board of directors, charged with overseeing the entity’s system of internal control over financial reporting, internal and external auditors and the financial reporting processes

Question 15

Auditing standards of the PCSOB

Answer 15

statements issued by the public company accounting oversight board

Question 16

Corporate governance

Answer 16

the oversight mechanisms in place to help ensure the proper stewardship over an entity’s assets

Question 17

Independence

Answer 17

a state of objectivity in face and in appearance, including the absence of any significant conflicts of interest

Question 18

Integrated audit

Answer 18

an audit of both financial statements and internal control over financial reporting, provided b the external auditor, required for public companies

Question 19

Ethics

Answer 19

a system or code of conduct based on moral duties and obligations that indicate how we should behave

Question 20

Professionalism

Answer 20

the conduct, aims or qualities that characterize a profession or professional person

Question 21

Analytical procedures

Answer 21

evaluations of financial information through analysis of plausible relationships among both financial and non-financial data

Question 22

Audit committee

Answer 22

a subcommittee of the board of directors that is responsible for the financial reporting and disclosure process

Question 23

Audit data analytics

Answer 23

using analysis, modeling, and visualization to discover and analyze patterns, anomalies and other information in data in the context of the audit

Question 24

Audit strategy

Answer 24

the auditor’s plan for the expected conduct, organization and staffing of the audit

Question 25

Dual-purpose tests

Answer 25

tests of transactions that both evaluate the effectiveness of controls and detect monetary errors

Question 26

Engagement letter

Answer 26

a letter that formalizes the contract between the auditor and entity and outlines the responsibilities of both parties

Question 27

Overall materiality

Answer 27

the maximum amount by which the auditor believes the financial statements could be misstated and still not affect the decisions of users

Question 28

Risk assessment procedures

Answer 28

the audit procedures designed and performed to identify and assess the risks of material misstatement, whether due to fraud or error, at the financial statement and assertion levels

Question 29

Substantive procedures

Answer 29

audit procedures performed to test material misstatements in an account balance or disclosure component of the financial statements

Question 30

Substantive tests of transactions

Answer 30

test to detect errors or fraud in individual transactions

Question 31

Test of Details

Answer 31

substantive tests that concentrate on the details of items contained in the account balance and disclosure

Question 32

Tolerable misstatements

Answer 32

The amount of the overall materiality that is used to establish a scope for the audit procedures for the individual account balance or disclosures

Question 33

Transactions and events for period under audit

Answer 33

○ Occurrence - did it happen? In substance?
○ Completeness - is that everything? Anything missing?
○ Authorization - proper channels and approvals?
○ Accuracy - add up? Foot? Tie?
○ Cut off (time period) - Proper time period recognition?
○ Classification - COA? GAAP? IFRS? RAP? Other?
- presentation

Question 34

• Account balances at period end:

Answer 34

○ Existences
○ Right and Obligations
○ Completeness
○ Accuracy, Valuation and Allocation