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Auditing Theory > Exam #1 > Flashcards

Exam #1 Flashcards

1
Q

Information Risk

A

The possibility that the information upon which the business risk decision was made was inaccurate

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2
Q

Assurance Service

A

An independent professional service that improves the quality of information for decision makers

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3
Q

Attestation Service

A

A type of assurance in which the CPA firm issues a report about the reliability of an assertion that is made by another party

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4
Q

Types of attestation services

A
  1. Annual audit of historical financial statements
  2. Audit of internal control over financial reporting
  3. Quarterly review of historical financial statements
  4. Attestation services on information technology
  5. Other attestation services
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5
Q

Non-assurance services provided by CPAs

A
  1. Accounting and bookkeeping
  2. Tax services
  3. Management consulting services
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6
Q

Operational audit

A

Evaluates the efficiency and effectiveness of any part of an organizations operating procedures and methods

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7
Q

Compliance audit

A

Conducted to determine whether the auditee is following specific procedures, rules or regulations set by some higher authority

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8
Q

Financial statement audit

A

Conducted to determine whether the financial statements are stated in accordance with specific criteria

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9
Q

Four types of auditors

A
  1. Certified public accountants
  2. Government accountability office auditors
  3. Internal revenue agents
  4. Internal auditors
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10
Q

Staff assistant

A

0-2 years experience. Perform most of the detailed audit work.

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11
Q

Senior or in-charge auditor

A

2-5 years experience. Responsible for audit field work including supervising staff work.

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12
Q

Manager

A

5-10 years experience. Helps in-charge plan, manages audit, reviews in-change’s work and works with the client.

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13
Q

Partner

A

10+ years experience. Reviews audit work and makes significant audit decisions.

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14
Q

Securities and exchange commission (SEC)

A

Federal government agency that assists in providing investors with reliable information upon which to make investment decisions

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15
Q

American Institute of Certified Public Accountants (AICPA)

A

Sets professional requirements for CPAs, conducts research and publishes materials

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16
Q

Public Company Audit Oversight Board (PCAOB)

A

Provides oversight for auditors of public companies, established auditing and quality control standards for public company audits and performs inspections of the quality controls at audit firms performing those audits

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17
Q

GAAS General Standards

A
  1. Audit is performed by persons having adequate training and proficiency as an auditor
  2. Auditor must maintain independence in mental attitude in all matters relating to the audit
  3. Auditor must exercise due professional care in the performance of the audit and preparation of the report
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18
Q

GAAS Standards of Field Work

A
  1. Audit work is to be properly planned and supervised
  2. Sufficient understanding of the entity must be obtained to plan the audit
  3. Sufficient appropriate evidence must be obtained by performing audit procedures
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19
Q

GAAS Standards of Reporting

A
  1. Report must state whether the financial statements are prepared in accordance with GAAP
  2. Report shall identify circumstances when GAAP was not followed
  3. Adequacy of disclosures must be reported
  4. Report must contain an expression of opinion regarding the financial statements
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20
Q

Standard unqualified audit report

A

Financial statements are presented in accordance with GAAP and are free from material misstatements

21
Q

Seven distinct parts of the unqualified audit report

A
  1. Report title
  2. Audit report address
  3. Introductory paragraph
  4. Scope paragraph
  5. Opinion paragraph
  6. Name of CPA firm
  7. Audit report date
22
Q

Unqualified audit report with explanatory paragraph

A

Meets the criteria of a complete audit with satisfactory results and financial statements that are fairly presented but the auditor believes it’s important to provide additional information

23
Q

Five circumstances of an unqualified audit report with explanatory paragraph

A
  1. Lack of consistent application of GAAP
  2. Substantial doubt about going concern
  3. Auditor agrees with a departure from promulgated accounting principles
  4. Emphasis on other matters
  5. Reports involving other auditors
24
Q

Qualified opinion

A

Report can result from a limitation on the scope of the audit or failure to follow GAAP

25
Q

Adverse opinion

A

Used only when the auditor believes that the overall financial statements are so materially misstated that they do not present fairly the financial position

26
Q

Disclaimer of opinion

A

Issues when the auditor is unable to be satisfied that the overall financial statements are fairly presented

27
Q

Audit procedure

A

Detailed instruction that explains the audit evidence to be obtained during the audit

28
Q

Audit program

A

The list of audit procedures for an entire audit

29
Q

Physical examination

A

Inspection or count by the auditor of a tangible asset

30
Q

Confirmation

A

Receipt of a direct written response from a third party verifying the accuracy of information that was requested by the auditor

31
Q

Inspection

A

Auditor’s examination of the client’s documents and records to substantiate the information that is, or should be, included in the financial statements

32
Q

Vouching

A

Downstream testing used to detect and overstatement

33
Q

Tracing

A

Upstream testing used to detect an understatement

34
Q

Analytical procedures

A

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

  1. Variances
  2. Ratio analysis
  3. Expected values
35
Q

Inquiries of the client

A

Obtaining of written or oral information from the client in response to questions from the auditor

36
Q

Recalculation

A

Rechecking a sample of calculations made by the client

37
Q

Foot

A

Additions of columns

38
Q

Cross foot

A

Addition of rows

39
Q

Reperformance

A

Auditors independent tests of client accounting procedures or controls that were originally done

40
Q

Observation

A

Looking at a process or procedure being performed by others

41
Q

Audit documentation

A

Principal record of auditing procedures applied, evidence on roamed and conclusions reached by the auditor

42
Q

Permanent files

A

Files intended to continue data of a historical nature pertinent to the current audit

43
Q

Current files

A

All audit documentation applicable to the year under audit

44
Q

Audit risk

A

The risk that we issue an unqualified audit opinion that states that the financial statements are free from material misstatements, when in fact they are not

45
Q

Inherent risk

A

The risk that factors beyond the control of either management or the auditors may lead to a misstatement

46
Q

Control risk

A

The risk that the clients internal controls fail to identify or prevent a transcationcr from being improperly recorded (or not recorded at all)

47
Q

Detection risk

A

The risk that the auditors procedures fail to detect a misstatement

48
Q

Actual deviation rate

A

of instance when internal controls were not applied / sample size

49
Q

Auditing

A

Determining whether recorded information properly reflects the economic event that occurred during the accounting period

Auditing Theory (1 decks)

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