Chapter 1

Question 1

Assurance

Answer 1

The lending of credibility to information

Question 2

Assurance services

Answer 2

Independent professional services that improve the quality of information, or its context, for decision makers

Question 3

Attestation

Answer 3

A professional service resulting in a report on an assertion (or assertions) about subject matter that is the responsibility of another party

Question 4

Attestation engagement

Answer 4

An engagement where a practitioner is requested to examine whether management’s assertions about some type of subject matter can be relied upon

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

Those factors, events, and conditions that could prevent the organization from achieving its business objectives; the risk that an entity will fail to meet its objectives

Question 7

Completeness

Answer 7

Management assertion that 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

Management assertion that refers to accounting for revenue, expense, and other transactions in the proper period. The cutoff date generally refers to the audit client’s year-end balance sheet date

Question 9

Existence

Answer 9

Management assertion that 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 disclosures to outside decision makers who do not have access to management’s internal sources of information; a company’s accountants, under the direction of its management, perform this function.

Question 11

Information risk

Answer 11

The probability that the information circulated by an entity will be false or misleading

Question 12

Internal auditing

Answer 12

A professional service provided to a company to assist the company in meeting its corporate goals and objectives in part by evaluating and recommending risk management, control, and governance processes; an independent, objective assurance and consulting activity designed to add value

Question 13

Occurence

Answer 13

Management assertion that 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

An examination designed to evaluate the processes and procedures of an organization or an area within an organization to ensure the process or area is operating efficiently and effectively

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

A state of mind that is characterized by appropriate questioning and a critical assessment of audit evidence

Question 17

Relevant assertion

Answer 17

A management assertion is relevant if there is a reasonable possibility that a material misstatement exists related to that assertion for the significant account or footnote disclosure being audited

Question 18

Rights and obligations

Answer 18

Management assertion that 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 transactions pertain to the entity

Question 19

Significant accounts

Answer 19

Account or footnote disclosure could contain a material misstatement. As a result, an auditor will have to conduct some procedures on each significant account or disclosure

Question 20

Substantial equivalency

Answer 20

The process through which CPAs licensed in one state can practice in another state

Question 21

System generated reports

Answer 21

Any report that is generated by the audit client’s information system that is used to execute its internal control procedures or produce its financial statements. It is important to test that each system-generated report is complete and accurate if it is being used for either of these purposes

Question 22

Valuation or allocation

Answer 22

Management assertion that all assets, liabilities, and equity interests of the entity have been valued in accordance with the relevant financial reporting standards (e.g., 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