ch 5 review (exam 2)

Question 1

Financial statements are:
1.
2.

Answer 1

1. prepared by management
2. includes representations made by management about recognition, measurement, presentations and disclosures

Question 2

what are three assertions management is making about inventory shown on the balance sheet?

Answer 2

-the items exist
- items are owned by the entity
- items are valued appropriately

Question 3

what are managements assertions

Answer 3

representations made by management int he financial statements

Question 4

The AICPA Audit Standards Board (private companies) has how many management assertions

Answer 4

12 assertions

Question 5

The PCAOB (public
companies) has how many managements assertions

Answer 5

5 assertions

Question 6

What are the private company assertions for classes of transactions and related disclosures (income statement focus)

Answer 6

1. occurence
2. completeness
3. accuracy
4. cutoff
5. classification
6. presentation

Question 7

which ASB assertion is the following: management claims all transactions and disclosures that should have been disclosed are disclosed

Answer 7

completeness

Question 8

which ASB assertion is the following: management claims transactions occurred and pertain to the company

Answer 8

occurence

Question 9

which ASB assertion is the following: all transactions have been recorded appropriately and related disclosures are appropriately measured and described

Answer 9

accuracy

Question 10

which ASB assertions is the following: management claims transactions in correct accounting periodq

Answer 10

cutoff

Question 11

which transaction is the following: management claims that transactions are included in the right category and any related disclosures are relatable and understandable in the context of the applicable accounting framework

Answer 11

presentation

Question 12

What are the private company assertions for account balances and related disclosures (balance sheet focus)

Answer 12

7. existence
8. rights and obligations
9. completeness
10. accuracy, valuation, allocation
11. classification
12. presentation

Question 13

which ASB assertion is the following: balance sheet items actually exist

Answer 13

existence

Question 14

which ΑSB assertion is the following: management claims they hold and control rights to assets on the balance sheet and liabilities are actually obligations of the entity

Answer 14

rights and obligations

Question 15

which ASB assertion is the following: all balance sheet items that should have been recorded have actually been recorded and all related disclosures are complete

Answer 15

completeness

Question 16

which ASB assertion is the following: items on balance sheet reported at appropriate amounts and any resulting valuation or allocation adjustment have been appropriately recorded and relate disclosures appropriately measured and described

Answer 16

accuracy, valuation, allocation

Question 17

which ASB assertion is the following: management recorded balance sheet items in proper accounts

Answer 17

classification

Question 18

which ASB assertion is the following: balance sheet items grouped appropriately related

Answer 18

presentation

Question 19

During risk assessment and planning assertions are used as a guide for assessing _________ and ___________

Answer 19

Risk of Material Misstatement and “What can go wrong”

Question 20

During risk assessment and planning identify _______________ for significant accounts and transactions and implement the __________________

Answer 20

relevant assertions; audit risk model

Question 21

what are relevant assetions

Answer 21

assertions that are reasonably possible to contain a material misstatement that would cause FS to be MM

Question 22

After assessing risk with audit risk model, plan __________ and create ____________

Answer 22

NET; audit program

Question 23

what is an audit program

Answer 23

listing of audit procedures that’ll be performed relating to each FS item

Question 24

what are the public company assertions from PCAOB

Answer 24

1. existence or occurence
2. completeness
3. valuation/ allocation
4. rights and obligations
5. presentation and disclosure

Question 25

audit procedures and most like which of the following: who, what, when, where, how, why

Answer 25

how

Question 26

what are audit procedures

Answer 26

methods used by audits in gathering audit evidence (specific actions)

Question 27

financial statements are not statements of facts they are ___________________ made by management about recognition, measurement, presentation, and disclosure of information in the financial statements

Answer 27

claims and assertions

Question 28

assertions are used as a _________ during risk assessments

Answer 28

guide

Question 29

what are the four forms of information

Answer 29

oral; visual; paper; electronic

Question 30

what are the 2 characteristics of audit evidence

Answer 30

sufficient and appropriate

Question 31

the characteristic "sufficient" is a ____________ factor

Answer 31

quantitative

Question 32

what is the "sufficient" characteristic

Answer 32

do we have enough evidence? (use professional judgement)

Question 33

the characteristic "appropriate" is a ______________ factor

Answer 33

qualitative

Question 34

what is the "appropriate" characteristic? ___________ and _________________ of audit evidence

Answer 34

relevance and reliability

Question 35

rank (from most reliable to least reliable) the source of audit evidence

Answer 35

1. external evidence 2. auditor observation and knowledge 3. internal evidence

Question 36

to obtain reasonable assurance, evidence must be _____________ (both sufficient and appropriate) for auditors to draw a conclusion

Answer 36

persuasive

Question 37

if RMM is high then will the level of sufficient appropriate evidence increased or deceased

Answer 37

increased

Question 38

if Detection Risk is low that will ____ level of sufficient appropriate evidence (increase or decreasee)

Answer 38

decrease

Question 39

audit procedures can be categorized into these three categories:

Answer 39

1. risk assessment procedures 2. test of controls 3. substantive procedures

Question 40

risk assessment procedures are used to

Answer 40

obtain an understanding of the entity and its environment including its IC to assess the risk of material misstatement

Question 41

test of controls are use to

Answer 41

evaluate the operating effectiveness of internal control in preventing or detecting material misstatement

Question 42

substantive procedures are used to

Answer 42

detect material misstatements

Question 43

what are the two subsets of substantive procedures

Answer 43

test of details; analytical procedures

Question 44

what is the acronym for the standard procedures used un every audit as risk assessment procedures, test of controls, and or substantive test:

Answer 44

F I V E C A R O T S

Question 44

what is the finished product of risk assessment and planning

Answer 44

audit program

Question 45

what are the two most common forms of confirmations

Answer 45

bank and receivable

Question 46

what do bank confirmations confirm

Answer 46

cash accounts, investments, loans, etc

Question 47

what do receivable confirmations confirm

Answer 47

confirm they exist by directly contacting a sample of customers of the client

Question 48

who controls confirmations

Answer 48

auditor

Question 49

can confirmations be sent out at client building

Answer 49

NO

Question 50

what is an auditor's sspecilist

Answer 50

an expertise in the field other than accounting/ auditing whose work in that field is used by the auditors to assist in obtaining sufficient appropriate evidence

Question 51

you figure out if you need a specialist during what phase

Answer 51

risk assessment

Question 52

who can be a specialist?

Answer 52

employee of accounting firm; usually contracted

Question 52

auditors should assess what three things about a specialist

Answer 52

competence, capability, objectivity

Question 53

who dictates what the specialist does, when and type of report/ documentation needed

Answer 53

auditors

Question 54

are internal auditors independent

Answer 54

no

Question 55

who are internal auditors

Answer 55

employees of the client that performs assurance/ consulting activities designed to evaluate and improve the effectiveness of the entity's governance, risk management, and IC processes

Question 56

the external auditors must asses these three things about internal auditors

Answer 56

objectivity; competence; processes

Question 57

how can external auditors use the work of internal auditors?

Answer 57

1. use work already completed or planned to be completed by IAS 2. use the IAs to provide direct assistance on the audit

Question 58

a group financial statement may require a ___________

Answer 58

group audit

Question 59

what are the two types of confirmations

Answer 59

positive and negative

Question 60

what is a positive confirm

Answer 60

ask for a response in all cases; must follow up on all non-responses

Question 61

what is a negative confirm

Answer 61

ask for a response only if they disagree

Question 62

what is a permanent file

Answer 62

information that doesn't change much from year to year

Question 63

what is a current file

Answer 63

information related specifically to the current year audit