Chapter 2 - The Financial Statement Auditing Environment

Question 1

Star - What are the Four Types of Auditors?

Answer 1

External
Internal (CIA)
Government
Fraud (CFE)

Question 2

Star - What are Audit Services?**

Answer 2

Internal control audits, compliance audits, operational audits, fraud audits

Question 3

Star - What are Attest Services?**

Answer 3

Reporting on nature and quantity of inventory stored in a company’s warehouse so that the company can obtain a bank loan.

Question 4

Star - What are Assurance Services?**

Answer 4

Auditing is a specialized form of assurance service.

Question 5

Star - What are some Non-Audit Services Auditors provide?**

Answer 5

Tax preparation and planning services, management advisory services, compilation and review services

Question 6

What is the Audit team’s structure?

Answer 6

Partner
Manager
Senior/In Charge (The Hardest Job)
Associate/Staff

Question 7

Public accounting firms’ corporate structure

Answer 7

Most are either sole proprietorships or partnerships. Very few corporations

Question 8

What is the Auditor’s responsibility?

Answer 8

It’s the auditor’s responsibility to obtain reasonable assurance about whether the statements are free of misstatement whether caused by error, fraud, or illegal acts.

Question 9

Star - What are the 5 Components of Business Processes?

Answer 9

Financing
Purchasing
Human Resources Management
Inventory Management
Revenue

Question 10

Principles Underlying an Audit Conducted in Accordance with GAAS

Answer 10

Purpose of an Audit and Premise upon Which an Audit is Conducted
Responsibilities
Performance
Reporting

Question 11

Star - Purpose of An Audit and Premise Upon Which an Audit is Conducted (Part 1)

Answer 11

Purpose is to provide opinion on whether financial statements are presented fairly.

Question 12

Star - Purpose of An Audit and Premise Upon Which an Audit is Conducted (Part 2)

Answer 12

Conducted on the premise that management have the responsibility of:
1. Preparation and fair presentation of financial statements.
2. Provide auditor with all relevant info, any additional info needed, and unrestricted access to those within the entity

Question 13

Star - Responsibility Principle Underlying an Audit

Answer 13

Auditors are responsible for having appropriate competence and capabilities to perform the audit.

Question 14

Star - Performance Principle Underlying the Audit

Answer 14

To express an opinion on whether the statements are misstated. To obtain reasonable assurance which is not absolute.

Question 15

Star - Reporting Principle Underlying the Audit

Answer 15

In a written report, the auditor expresses an in opinion in accordance with their findings, or states an opinion cannot be expressed.

Question 16

(ESSAY QUESTION) What are the four types of Audits? (Part 1)

Answer 16

Internal Control Audits - For public companies, who are reviewed for their effectiveness.

Compliance Audits - Determines to the extent which rules, laws, etc. are followed by the entity.

Question 17

(ESSAY QUESTION) What are the four types of Audits? (Part 2)

Answer 17

Operational Audits - Systematic review of part or all of an organization’s activities to evaluate whether resources are being used effectively and efficiently.

Fraud Audits - To detect or deter fraudulent activities.