Financial Statement Audits Flashcards
Which of the following best describes what is meant by the term “generally accepted auditing standards”?
The Statements on Auditing Standards issued by the Auditing Standards Board.
Since the clarified auditing standards went into effect, GAAS now refers to the set of Statements on Auditing Standards issued by the Auditing Standards Board.
To exercise due professional care an auditor should
Critically review the judgment exercised by those assisting in the audit.
The auditor is required by GAAS to exercise due care in the performance of the audit and the preparation of the report. Due care encompasses the employment of reasonable care and diligence as well as critical review at every level of supervision of the work done and the judgment exercised by those assisting in the audit.
Interpretive publications include all of the following, except for
Articles in the Journal of Accountancy have no authoritative status, and would be classified as other auditing publications.
The purpose of establishing quality control policies and procedures for deciding whether to accept or continue a client relationship is to
Minimize the likelihood of associating with clients whose management lacks integrity.
The AICPA’s Quality Control Standards identify 3 focal points in considering acceptance and continuance issues: (1) the integrity and reputation of management and other relevant persons associated with the entity; (2) whether the CPA has the competence and resources to perform the engagement; and (3) whether the CPA can comply with applicable legal and ethical requirements. Hence, a primary purpose of addressing the acceptance/continuance issues is to avoid association with clients whose management lacks integrity and clients who are otherwise regarded as too risky.
Which of the following statements would least likely appear in an auditor’s engagement letter?
After performing our preliminary analytical procedures we will discuss with you the other procedures we consider necessary to complete the engagement.
The engagement letter documents the understanding between the auditor and the client regarding the nature and timing of the services to be performed, expected fees and the basis for billing, the responsibilities of the auditor, the client’s responsibilities in preparing for the audit, and the need for other services to be performed. It would not include a statement committing the auditor to discuss the auditing procedures considered necessary. Selection and performance of auditing procedures are a matter of auditor judgment and not subject to disclosure to the client.
Principles Underlying an Audit Conducted in Accordance with GAAS state that sufficient appropriate audit evidence is to be obtained through designing and implementing appropriate responses, i.e., by performing audit procedures, to afford a reasonable basis for an opinion regarding the financial statements under audit. The substantive evidential matter required by this standard may be obtained, in part, through
Analytical procedures.
Substantive evidential matter required by the Principles may include evidence obtained through the performance of substantive analytical procedures (as well as that obtained through inspection, observation, inquiries, and confirmation). Analytical procedures performed as substantive tests can be used to provide substantive evidential matter.
An attestation engagement is one in which a CPA is engaged to
Issue a written communication expressing a conclusion about the reliability of a written assertion that is the responsibility of another party.
An attestation engagement is one in which the practitioner is engaged to issue an examination, a review, or an agreed-upon procedures report on subject matter or an assertion about subject matter that is the responsibility of another party.
