Ch. 1

Question 1

Sampling

Answer 1

Auditors approach to examine a subset of the transaction based on previous audits, understanding of the company’s internal control system, or knowledge of the company’s industry.

Question 2

Types of Audit reports (opinion)

Answer 2

-Unqualified
-Qualified
-Adverse
-Disclaimer

Question 3

Audit report - Unqualified/unmodified

Answer 3

a “clean” audit report, indicating the auditor’s opinion that a client’s financial stmts are fairly presented in accordance with the agreed upon criteria (GAAP)

Question 4

Audit report - Qualified

Answer 4

“execpt for”

Question 5

Audit report - Adverse

Answer 5

in violation of GAAP

Question 6

Audit report - Disclaimer

Answer 6

you can’t give an opinion

Question 7

Demand for auditing

Answer 7

the need for accountability when business owners hire others to manage their businesses

Question 8

Capital market

Answer 8

allows public companies to sell small pieces of ownerships or to borrow money in the form of thousands of small loans so that vast amounts of capital can be raised from a wide variety of investors and creditors.

Question 9

Public company

Answer 9

a company that sells its stocks or bonds to the public

Question 10

Information Asymmetry

Answer 10

the concept that the manager has more information about the true financial position and results of operations of the entity than the owner

Question 11

Reporting

Answer 11

end product of the auditor’s work

Question 12

Auditor’s purpose

Answer 12

to determine whether the reports prepared by the manager conform to the contract’s provisions, adding credibility to the reports and reducing information risk

Question 13

Information risk

Answer 13

risk that info circulated by a company’s management could be false or misleading

Question 14

Assertions

Answer 14

Measurement, presentation, and disclosure of information in the financial statements; that states if the financial statements are in accordance with applicable reporting guidelines (GAAP)

Question 15

Types of assertions for THE PERIOD UNDER AUDIT

Answer 15

-Occurrence
-Completeness
-Authorization
-Accuracy
-Cutoff
-Classification
-Presentation

Question 16

Types of assertions at the PERIOD END

Answer 16

-Existence
-Rights & Obligations
-Completeness
-Accuracy, Valuation, and Allocation
-Classification
-Presentation

Question 17

Occurrence - for period under

Answer 17

Transactions and events that have been recorded or disclosed have occurred, and pertain to the entity

Question 18

Completeness - For period under

Answer 18

All transactions and events that should have been recorded have been recorded, all related disclosures that should have been included in the financial statements have been included

Question 19

Authorization - for period under

Answer 19

All transactions and events have been properly authorized

Question 20

Accuracy - For period under

Answer 20

Amounts and other data relating to recorded transactions and events have been recorded appropriately, and related disclosures have been appropriately measured and described.

Question 21

Cutoff - for period under

Answer 21

Transactions and events have been recorded in the correct accounting period

Question 22

Classification - for period under

Answer 22

Transactions and events have been recorded in the proper accounts

Question 23

Presentation - for period under

Answer 23

transactions and events are appropriately aggregated or disaggregated and clearly described, and related disclosures are relevant and understandable in the context of the requirements of the applicable financial reporting framework

Question 24

Existence - at period end

Answer 24

Assets, Liabilities and equity interests exist

Question 25

Rights and obligations - at period end

Answer 25

the entity holds or controls the rights to assets, and liabilities are the obligations of the entity

Question 26

Completeness - at period end

Answer 26

All assets, liabilities, and equity interests that should have been recorded have been recorded and all related disclosures that should have been included in the financial statements have been included

Question 27

Accuracy, valuation, and allocation - at period end

Answer 27

Assets, liabilities, and equity interests have been included in the financial statements at appropriate amounts, and any resulting valuation or allocation adjustments have been appropriately recorded and related disclosures have been appropriately measured and described

Question 28

Classification - at period end

Answer 28

Assets, liabilities, and equity interests have been recorded in the proper accounts

Question 29

Presentation - at period end

Answer 29

Assets, liabilities, and equity interests are appropriately aggregated or disaggregated and clearly describes, and related disclosures are relevant and understandable in the context of the requirements of the applicable financial reporting framework

Question 30

Assurance services

Answer 30

Independent professional services that improve the quality of information for decision makers

Question 31

Attest services

Answer 31

services provided by a practitioner engaged to issue a report on subject matter or an assertion about subject matter, that is the responsibility of another party

Question 32

Auditing

Answer 32

objectively obtaining and evaluating evidence at asses another party's assertions that a particular set of information has been recorded and presented in accordance with a predetermined set of criteria, together with the issuance of a report that indicates the degree of correspondence between the assertions and the criteria

Question 33

3 fundamental concepts of fin. stmt. audit

Answer 33

Materiality, audit risk, and evidence regarding management assertions

Question 34

Materiality

Answer 34

the amount by which a set of financial statements could be misstated without affecting the judgment of a reasonable person ($4.50 share posted as $4.52 by mistake); the small mistake is unlikely to affect an investor's decisions. auditor will likely name the difference as immaterial

Question 35

Misstatement

Answer 35

The difference between a reported amount and the required amount for the item to be presented fairly in accordance with the applicable financial reporting standards

Question 36

Audit Risk

Answer 36

Risk that the auditor expresses an inappropriate audit opinion when the financial statements are materially misstated

Question 37

Reasonable assurance

Answer 37

the concept that an audit done in accordance with auditing standards may not detect a material misstatement in a client's financial stmts ( high but not absolute level of assurance)

Question 38

Evidence regarding management assertions

Answer 38

All the information used by the auditor in arriving at the conclusions on which audit opinion is based. Audit evidence is information to which audit procedures have been applied and consists of information that corroborates or contradicts assertions in the financial statements

Question 39

Sufficiency of audit evidence

Answer 39

the quantity of evidence the auditor obtains

Question 40

Appropriateness of audit evidence

Answer 40

the quality of the evidence

Question 41

Evidence relevence

Answer 41

whether the evidence relates to the specific management assertion being tested

Question 42

Evidence reliability

Answer 42

the information value of the evidence

Question 43

Phases of an Audit

Answer 43

Client acceptance, Preliminary engagement activities, plan the audit, consider/audit internal control, audit business processes/related accounts, complete the audit, evaluate results and issue audit reports

Question 44

Client acceptance/continuance

Answer 44

Auditors establish policies and procedures for deciding whether to accept new audit clients and to retain current clients; auditor gathers knowledge during this process that provides valuable understanding of the entity and its environment; helping the auditor assess risk and plan the audit

Question 45

Preliminary Engagement Activities

Answer 45

Updates understanding of the entity and its environment. (1) determine the audit engagement team requirements. (2) ensure the independence of the audit firm and audit team. (3) establish an understanding with the client regarding the services to be preformed and the other terms of the engagement

Question 46

Plan the audit

Answer 46

to ensure the audit is conducted in an effective and efficient manner. outcome is a written audit plan that sets forth the nature, timing, and extent of the audit procedures to be performed.

Question 47

Risk of material misstatement (RMM)

Answer 47

the risk that the financial statements are materially misstated prior to the audit

Question 48

Consider and Audit Internal control

Answer 48

The suditor obtains an understanding of internal control to help the auditor assess risk and identify areas where fin stmts might be misstated

Question 49

Audit business processes and related accounts

Answer 49

the organization of audits by grouping accounts according to the business processes

Question 50

Complete the audit

Answer 50

After collecting audit evidence, auditors assesses the sufficiency and appropriateness of the evidence. auditor also includes issues that may impact the fin stmts

Question 51

Evaluate results and issue audit report

Answer 51

evaluate results and choose the appropriate audit report issue. the audit opinion is the main product

Question 52

Audit data analytics (ADA)

Answer 52

using analysis, modeling and visualization to discover and analyze patterns, anomalies, and other information in data in the context of the audit