Chapter 1 - Vocabulary

Question 1

Assurance

Answer 1

The lending of credibility to information.

Question 2

Assurance Services

Answer 2

Independent professional services that improve the quality or its context for decision makers.

Question 3

Attestation

Answer 3

The lending of credibility to assertions made by a third party.

Question 4

Attestation Engagement

Answer 4

The provision of an opinion on subject matter or an assertion about the subject matter that is the responsibility of another party.

Question 5

Auditing

Answer 5

The systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between the assertions and established criteria and communicating the results to interested users.

Question 6

Business Risk

Answer 6

The risk that an entity will fail to meet its objectives. If the company fails to meet its objectives enough times, the company may ultimately fail.

Question 7

Completeness

Answer 7

All of the transactions, events, assets, liabilities, equity interests and other disclosures that should have been recorded in the financial statements have been recorded.

Question 8

Cutoff

Answer 8

Refers to accounting for revenue, expenses and other transactions in the proper period. The cutoff date refers to the audit clients year-end balance sheet date.

Question 9

Existence

Answer 9

All assets, liabilities, and equity interests do actually exist.

Question 10

Financial Reporting

Answer 10

Process of providing statements of financial position, results of operations, changes in cash flows, and accompanying disclosure to outside decision makers who do not have access to management’s internal sources of information. A company’s accountants perform this function.

Question 11

Information Risk

Answer 11

The probability that the information circulated by a company will be false or misleading.

Question 12

Internal Auditing

Answer 12

An independent, objective assurance and consulting activity designed to add value and improve an organization’s operations.

Question 13

Occurrence

Answer 13

All of the transactions and events that have been recorded are valid, pertain to the entity, and have actually taken place.

Question 14

Operational Auditing

Answer 14

The study of business operations for the purpose of making recommendations about the efficient use of resources, effective achievement of business objectives, and compliance with company policies.

Question 15

Presentation and Disclosure

Answer 15

Management assertion that all transactions and events have been presented correctly and that all relevant information has been disclosed to financial statement users, usually in the footnotes to the financial statements.

Question 16

Professional Skepticism

Answer 16

Having an attitude that includes a questioning mind and a critical assessment of evidence. A tendency to not believe management’s assertions without corroboration.

Question 17

Rights and Obligations

Answer 17

The entity is entitled to all rights of the assets, the liabilities are the legal responsibility of the entity, and all of the disclosed events and transaction pertain to the entity.

Question 18

Substantial Equivalency

Answer 18

The process that allows a CPA registered in one state to practice in another state.

Question 19

Valuation or Allocation

Answer 19

All assets, liabilities, and equity interests of the entity have been valued in accordance with the relevant financial reporting standard (GAAP) and are listed in the financial statements at the proper amount and any resulting valuation adjustments have been appropriately recorded in the financial statements.