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Audit & Assurance > What Is Auditing? (intro chapter) > Flashcards

What Is Auditing? (intro chapter) Flashcards

1
Q

why do audits exist?

A

most companies benefit

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2
Q

how do companies benefit from audits?

A

attracts investors, receives lower interest rates from creditors

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3
Q

fraud negatively impacts who?

A

investors, employees, public trust, and creditors (aka banks)

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4
Q

how are those negatively impacted by fraud protected?

A

by federal securities laws

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5
Q

what item do we audit?

A

10 k item 8

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6
Q

what do we assume about financial statements?

A

they are “CORRECT”

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7
Q

what are the PCAOB financial statement assertions acronym?

A

PERCV

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8
Q

P in PERCV

A

presentation and discloser

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9
Q

E in PERCV

A

existence and occurrence

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10
Q

R in PERCV

A

rights and obligations

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11
Q

C in PERCV

A

completeness

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12
Q

V in PERCV

A

valuation and allocation

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13
Q

existence and occurrence B/S questions

A

existence? are they real? do the assets and liabilities exist?

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14
Q

existence and occurrence I/S questions

A

occurrence? are they real? did the revenues and expenses occur?

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15
Q

completeness for B/S and I/S

A

all transactions and accounts are included. is everything included? is something improperly excluded?

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16
Q

valuation and accuracy for B/S and I/S

A

all components have been included at the appropriate amounts. are amounts accurately valued? are amounts allocated properly? (ex non-current vs current)

17
Q

rights and obligation for B/S

A

rights = assets
obligations = liabilities

18
Q

for rights and obligations, rights = __?

A

assets

19
Q

for rights and obligations, obligation = __?

A

liabilities

20
Q

presentation and discloser for B/S and I/S

A

all components are properly disclosed the financial statements and/or the notes

21
Q

who is management at a public company?

A

CEO and CFO

22
Q

what is an independent audits goal?

A

to provide “reasonable assurance” that the F/S are free from material misstates

23
Q

audits lend ___ to financial statements by…

A

credibility, lowering information risk

24
Q

what is information risk?

A

risk that information is materially misstated (due to fraud or error)

25
Q

how can information be materially misstated?

A

fraud and error

26
Q

what lowers information risk?

A

credibility

27
Q

CAQ says an auditor is a…

A

professional who helps determine if organizations and businesses
1. follow the rules (GAAP)
2. operate with integrity
3. accurately present financial information

28
Q

an auditor makes sure businesses follows what rules?

A

GAAP

29
Q

an auditor makes sure a client operates with…

A

integrity

30
Q

the textbook definition of auditing is…

A

“auditing is a systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between assertions and establishing criteria and communicating the results to interested users”

31
Q

auditing is a ___ process

A

systematic

32
Q

audits obtain and evaluate evidence regarding ____

A

assertions

33
Q

assertions refer to…

A

F/S, including footnotes

34
Q

what provides the established criteria?

A

GAAP

35
Q

what does it mean to “communicate the results”?

A

provide auditor / other reports

36
Q

who are interested users?

A

persons who rely on the financial reports (investors and creditors)

37
Q

Professors definition of financial statement audit

A

“auditor come in and look at evidence to make sure that the F/S are correct (follow assertions) and follow GAAP”

38
Q

what does is mean for F/S to be “correct”?

A

follows assertions

Audit & Assurance (12 decks)

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